We-Know-Widgets,Inc

question 20

Multiple Choice

We-Know-Widgets,Inc.is analyzing a project that requires an initial investment of $10,000,followed by cash inflows of $1,000 in Year 1,$4,000 in Year 2,and $15,000 in Year 3.The cost of capital is 10%.What is the profitability index of the project?

• A)1.04
• B)1.55
• C)1.78
• D)1.97

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Definitions:

Dividends

Payments made by a corporation to its shareholder members, usually derived from the company's profits.

Cost

The amount of spending in monetary terms incurred in the production of goods or in providing services.

Factory Overhead Cost

Factory overhead cost encompasses all indirect costs associated with the manufacturing process, including utilities, equipment depreciation, and factory personnel salaries, not directly tied to production.

Depreciation

The process of allocating the cost of a tangible asset over its useful life, reflecting wear and tear, or obsolescence.