A Project Has an Initial Investment of $95,000

question 134

Multiple Choice

A project has an initial investment of $95,000. Its four year cash inflows are estimated to be $21,000 in year 1, $23,000 in year 2, $25,000 in year 3, and $27,000 in year 4. If the rate of return is 8%, calculate the project's Profitability Index.

• A) 1.83
• B) 1.53
• C) 1.03
• D) 0.83
• E) 0.53

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Definitions:

Management Accounting

The accounting system used within the organization to help the organization achieve its goals.

Financial Accounting

Accounting for the revenues, expenses, assets, liabilities, and equities of an organization, concentrating on external users (shareholders, lenders, and government). Constrained by FASB rulings and other generally accepted accounting principles.

Tax Purposes

The reasons or objectives related to the calculation and payment of taxes to comply with legal requirements.

Shareholders' Wealth

The total value of a company to its shareholders; typically measured by market capitalization or the value of shares held.