A New Product Has Start-Up Costs of $389,200 and Projected

question 64

Multiple Choice

A new product has start-up costs of $389,200 and projected cash flows of $102,000,$187,500,and $245,000 for Years 1 to 3,respectively.What is the profitability index given a required return of 14 percent?

• A)0.98
• B)0.83
• C)1.16
• D)1.03
• E)1.21

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Definitions:

Capital

Assets or resources, such as machinery, buildings, or money, that can be used to produce goods and services and generate wealth.

Coined

Refers to the creation of a new word or phrase or the process of making coins as a form of currency.

Interest Rate

The percentage at which interest is paid by borrowers for the use of money that they borrow from a lender.

Profit

The financial gain that is realized when the amount of revenue gained from a business activity exceeds the expenses, costs, and taxes needed to sustain the activity.