The following information is provided by Dinovo Systems
Project A Project B Project C Project D
Initial investment $438,000 $218,000 $560,000 $516,000
PV of cash inflows $582,000 $388,000 $800,000 $394,000
Payback period (years) 3.6 3.2 4.0 2.0
NPV of project $144,000 $170,000 $240,000 $122,000
Calculate the profitability index for Project B. Show your calculations and round to two decimal places.
What will be an ideal response
Profitability Index = Present value of net cash inflows / Initial investment = $388,000 / $218,000 = 1.78
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