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

question 52

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:

Present Value

The modern equivalent value of a future monetary sum or cash flow sequence, with an established return rate.

Interest Rate

The percentage charged on a loan or paid on deposited funds, representing the cost of borrowing or the gain on savings.

Future Value

The value of a current asset at a specified date in the future based on an assumed rate of growth.

Present Value

The current valuation of a future financial sum or stream of payments, factoring in a set rate of return.