Calculate the Profitability Index of a 20-Year Project with a Cost

question 85

Multiple Choice

Calculate the profitability index of a 20-year project with a cost of $400,000 and annual cash flows of $50,000 in years 1-10 and $25,000 in years 11-20. The company's required rate of return is 10%.

• A) 0.92
• B) 0.98
• C) 1.02
• D) 1.08
• E) 1.15

---

Definitions:

Demographic Transition

A model describing how the birth and death rates of a population change over time as a country develops from pre-industrial to industrial economic system.

Environmental Resistance

Factors in the environment that limit the growth, abundance, or distribution of an organism or a population of organisms.

Replacement Reproduction

Population in which each person is replaced by only one child.

Zero Population Growth

No growth in population size.