Using the Profitability Index Method, the Present Value of Cash

question 80

Multiple Choice

Using the profitability index method, the present value of cash inflows for Project Flower is $88,000 and the present value of cash inflows of Project Plant is $48,000. If Project Flower and Project Plant require initial investments of $90,000 and $40,000, respectively, and have the same useful life, the project that should be accepted is

• A) Project Flower.
• B) Project Plant.
• C) Either project may be accepted.
• D) Neither project should be accepted.

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Definitions:

Small-Business Designation

A category that identifies a business as being relatively small in size within its industry, according to specific criteria set by governmental agencies or financial institutions.

Government Agencies

Public sector entities established by a government to implement legislation, govern, and administer public policy.

Incorporation

The process of legally declaring a corporate entity as separate from its owners, providing limited liability and other benefits.