Your Firm Is Considering an Investment That Will Cost $920,000

question 87

Multiple Choice

Your firm is considering an investment that will cost $920,000 today.The investment will produce cash flows of $450,000 in year 1,$270,000 in years 2 through 4,and $200,000 in year 5.The discount rate that your firm uses for projects of this type is 11.25%.What is the investment's profitability index?

• A) 1.21
• B) 1.26
• C) 1.43
• D) 1.69

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Definitions:

Maturity Date

The date on which the final payment for a loan, bond, or other financial instrument is due to be paid.

Interest Rate

The percentage charged on the total amount of borrowed money or paid on deposited funds, influencing the cost of loans and savings.

Initial Amount

The starting sum or value in financial transactions or calculations.

Stock Ownerships

The holding of shares in a company, which represents a claim on the company's assets and earnings.