The following information is provided by Pemberton Systems
Project A Project B Project C Project D
Initial investment $434,000 $200,000 $568,000 $510,000
PV of cash inflows $572,000 $396,000 $808,000 $402,000
Payback period (years) 3.6 3.2 4.0 2.0
NPV of project $138,000 $196,000 $240,000 $108,000
Which project has the highest profitability index?
A) Project A
B) Project B
C) Project C
D) Project D
B .B)
Project Present value of cash inflows / Initial investment = Profitability Index
Project A $572,000 / $434,000 = 1.32
Project B $396,000 / $200,000 = 1.98
Project C $808,000 / $568,000 = 1.42
Project D $402,000 / $510,000 = 0.79
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