The Following Information Is Provided by Pemberton Systems Which Project Has the Highest Profitability Index?
A) Project a |

question 26

Multiple Choice

The following information is provided by Pemberton Systems: $$\begin{array} { | l | r | r | r | r | } \hline & \text { Project A } & \text { Project B } & \text { Project C } & \text { Project D } \\\hline \text { Initial investment } & \$ 422,000 & \$ 212,000 & \$ 562,000 & \$ 516,000 \\\hline \text { PV of cash inflows } & \$ 588,000 & \$ 380,000 & \$ 810,000 & \$ 390,000 \\\hline \text { Payback period (years) } & 3.6 & 3.2 & 4.0 & 2.0 \\\hline \text { NPV of project } & \$ 166,000 & \$ 168,000 & \$ 248,000 & \$ 126,000 \\\hline\end{array}$$ Which project has the highest profitability index?

• A) Project A
• B) Project B
• C) Project C
• D) Project D

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Definitions:

Fixed Cost

A cost that does not change with an increase or decrease in the number of goods or services produced or sold.

Production Costs

Direct costs associated with the manufacturing of goods, including labor, materials, and overhead expenses.

Variable Manufacturing Costs

Expenses that vary directly with the level of production, such as raw materials and labor.

Book Value

The net value of a company's assets, calculated by subtracting its liabilities from its total assets.