Consider a Project That Requires an Immediate Cash Outflow of $100,000

question 134

Multiple Choice

Consider a project that requires an immediate cash outflow of $100,000 and provides a perpetual annual inflow of $15,000 starting two years from today.The cost of capital is 12%.What is the project's Profitability Index (PI) ?

• A)1.04
• B)1.12
• C)1.25
• D)1.33

---

Definitions:

Coupon Rate

The annual interest rate paid on a bond's face value, indicating the amount of periodic payments to the bondholder.

TIPS Bond

Treasury Inflation-Protected Securities are U.S. government bonds that are indexed to inflation in order to protect investors from the negative effects of rising prices.

Par Value

The nominal or face value of a bond, share of stock, or coupon as stated by the issuer, which does not necessarily reflect its market value.

Yield To Maturity

The total return anticipated on a bond if it is held until it matures, including all interest payments and the repayment of the principal.