The Following Information Is Provided by Graham Company Which Project Has the Highest Profitability Index?
A) Project a |

question 55

Multiple Choice

The following information is provided by Graham Company: $$\begin{array} { | l | r | r | r | r | } \hline & \text { Project A } & \text { Project B } & \text { Project C } & \text { Project D } \\\hline \text { Initial investment } & \$ 434,000 & \$ 200,000 & \$ 568,000 & \$ 510,000 \\\hline \text { PV of cash inflows } & \$ 572,000 & \$ 396,000 & \$ 808,000 & \$ 402,000 \\\hline \text { Payback period (years) } & 3.6 & 3.2 & 4.0 & 2.0 \\\hline \text { NPV of project } & \$ 138,000 & \$ 196,000 & \$ 240,000 & ( \$ 108,000 ) \\\hline\end{array}$$ Which project has the highest profitability index?

• A) Project A
• B) Project B
• C) Project C
• D) Project D

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Definitions:

Capital Expenditures

Capital employed by a business to buy, enhance, and keep up physical properties, including premises, manufacturing facilities, or devices.

Accounting Functions

The systematic process of recording, analyzing, summarizing, and reporting financial transactions of a business.

Agency Cost

Represents expenses arising from conflicts of interest between managers and shareholders within a corporation.

Corporate Jet

A private aircraft owned or leased by a corporation, used to transport company executives, employees, or clients.