The Following Information Is Provided by Cupola Systems Calculate the Profitability Index for Project A

question 38

Multiple Choice

The following information is provided by Cupola Systems: $\begin{array}{|l|r|r|r|r|} \hline&{\text { Project A }} &{\text { Project B }} &{\text { Project C }} & {\text { Project D }} \\\hline \text { Initial investment } & \$ 426,000 & \$ 214,000 & \$ 558,000 & \$ 516,000 \\\hline \text { PV of cash inflows } & \$ 584,000 & \$ 382,000 & \$ 806,000 & \$ 390,000 \\\hline \text { Payback period (years) } & 3.6 & 3.2 & 4.0 & 2,0 \\\hline \text { NPV of project } & \$ 158,000 & \$ 168,000 & \$ 248,000 & (\$ 126,000 \\\hline\end{array}$ Calculate the profitability index for Project A.(Round your answer to two decimal places.)

• A)1.01
• B)1.08
• C)1.37
• D)1.67

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Definitions:

Extending Credit

The act of allowing a buyer to purchase goods or services now and pay for them later, typically involving terms and conditions regarding repayment.

Cash Flow

The total amount of money being transferred into and out of a business, particularly in terms of liquidity and financial planning.

Cash Discount

A reduction in the invoice price offered by sellers to encourage early payment by buyers.

Carrying Costs

Expenses incurred for holding inventory over a period, which can include financial costs, storage fees, and loss due to obsolescence.