The Profitability Index Is Calculated by Dividing the

question 51

Multiple Choice

The profitability index is calculated by dividing the

• A)total cash flows by the initial investment.
• B)present value of cash flows by the initial investment.
• C)initial investment by the total cash flows.
• D)initial investment by the present value of cash flows.

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Definitions:

Target Cash Balance

The ideal amount of cash that a company aims to maintain in order to manage daily financial operations and contingencies effectively.

Collection Float

The amount of time it takes for money from checks or other types of payments to be processed and available in the company’s account.

Disbursement Float

The interval between the issuance of a check and the actual deduction of the amount from the issuer's account.

Lockbox System

A service provided by banks to companies for the collection of payments from customers, whereby payments are sent to a special post office box instead of to the company.