Question

A project requires an initial investment of $60,000 and has a project profitability index of 0.329. The present value of the future cash inflows from this investment is:A. $79,740B. $45,147C. $60,000D. Cannot be determined with available data.

Answer 1

The present value of the future cash inflows from this investment is $19,740

Step-by-step explanation:

Profitability Index is a useful tool for ranking project because we can know the amount/ value created by per unit of investment.

Profitability Index = Present value of future cash flow/ Initial Investment

↔ 0.329 = Present value of future cash inflow/ $60,000

↔ Present value of future cash inflow = 0.329 * $60,000 =$19,740