A Project Has an Initial Investment of $95,000

question 105

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

---

Definitions:

Adverse Selection

A situation in which one party in a transaction has more or better information than the other, often leading to an imbalance and potentially unfavorable outcomes.

Hidden Characteristics

Traits or features of a product or service that are not immediately observable to the buyer, potentially leading to information asymmetry.

Psychology

The scientific study of the mind and behaviors, encompassing a wide range of topics from cognitive processes to social interactions.

Economic Behavior

The study of how individuals, households, and organizations make choices to allocate scarce resources.