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

question 100

Multiple Choice

Consider a project with the following cash flows: After-Tax After-Tax
Accounting Cash Flow
Year Profits from Operations
Initial outlay = $1500
Terminal cash flow = 0
Calculate the profitability index if the company's discount rate is 10%.

• A)15.8
• B)1.61
• C)1.81
• D)0.62

---

Definitions:

Net Operating Income

A profitability measure calculated as the difference between a company's revenues from its operations and its operating expenses, excluding non-operating expenses and income.

Administrative Expenses

Costs related to the general management and administration of an organization, such as salaries of executive officers and costs of legal services.

Net Operating Income

The profit a company makes from its usual business operations, before taxes and interest, calculated by subtracting operating expenses from revenue.

Machine-Hours

A measure of production time used in cost accounting that quantifies the hours a machine is operated.