A Project Has an Initial Investment of $150,000

question 260

Multiple Choice

A project has an initial investment of $150,000. Its four year cash inflows are estimated to be $50,000 in year 1, $80,000 in years 2 and 3, and $50,000 in year 4. If the rate of return is 12%, calculate the project's Profitability Index.

• A) 1.31
• B) 1.41
• C) 1.51
• D) 1.61
• E) 1.71

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Definitions:

Publicly Traded

Refers to companies whose shares are bought and sold by the public on stock exchanges.

Basis

The amount of investment in a property for tax purposes, used to calculate gain or loss on the sale or other disposition of the property.

Condemnation Proceeds

Financial compensation received when property is taken by a government authority through eminent domain.

Recognized Gain

The amount of profit that is realized from the sale of assets that must be reported for tax purposes.