Consider a Project with the Following Cash Flows: After-Tax After-Tax

question 57

Multiple Choice

Consider a project with the following cash flows: After-Tax After-Tax
Accounting Cash Flow
Year Profits from Operations
1 $799 $750
2 $150 $1,000
3 $200 $1,200
Initial outlay = $1,500
Terminal cash flow = 0
Compute the profitability index if the company's discount rate is 10%.

• A) 15.8
• B) 1.61
• C) 1.81
• D) 0.62

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Definitions:

Market-To-Book Ratio

A ratio used to compare a company's market value to its book value, indicating investors' expectations of the company's future growth prospects.

Earnings Per Share

A company's net profit divided by the number of its outstanding shares, indicating the profitability of a company on a per-share basis.

Times-Interest-Earned Ratio

A financial metric that measures a company's ability to meet its debt obligations based on its current earnings.

Net Income

The total earnings of a company after all expenses and taxes have been deducted from total revenue.