The Following Information Is Provided by Glinda Systems What Is the Profitability Index for Project B? (Round Your

question 74

Multiple Choice

The following information is provided by Glinda Systems: $$\begin{array} { | l | r | r | r | r | } \hline & \text { Project A } & \text { Project B } & \text { Project C } & \text { Project D } \\\hline \text { Initial investment } & \$ 424,000 & \$ 212,000 & \$ 552,000 & \$ 504,000 \\\hline \text { PV of cash inflows } & \$ 588,000 & \$ 396,000 & \$ 800,000 & \$ 402,000 \\\hline \text { Payback period (years) } & 3.6 & 3.2 & 4.0 & 2.0 \\\hline \text { NPV of project } & \$ 164,000 & \$ 184,000 & \$ 248,000 & \$ 102,000 \\\hline\end{array}$$ What is the profitability index for Project B? (Round your answer to two decimal places. )

• A)1.92
• B)1.36
• C)1.25
• D)1.87

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Definitions:

Market Rate

The prevailing interest rate available in the marketplace for instruments of similar credit risk and maturity.

Face Value

The nominal or dollar value printed on a bond, bill, or other financial instrument, representing the amount to be repaid at maturity.

Selling Premium

The amount by which the selling price of a bond exceeds its par value or face value.

Premium on Bonds Payable

The excess amount by which bonds are issued over their face value, representing an additional cost of borrowing to the issuer.