The present value of future cash flows is $2000 and an initial cost is $1100 then the profitability index will be ___________?
Correct answer: B. 1.82
- A. 0.55
- B. 1.82
- C. 0.55
- D. 0.0182
Explanation
Profitability index = present value of future cash flows ÷ initial cost = $2,000 ÷ $1,100 = 1.82 approximately. The repeated 0.55 options represent the inverse calculation.
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Business finance explains how organisations plan, obtain and use money while balancing risk, return and liquidity. Topics include financial statements, time value of money, budgeting, working capital, capital structure, sources of finance, investment appraisal and cost of capital. Capital budgeting evaluates long-term projects, whereas working capital manages day-to-day operations.
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