Nelson’s Industrial Supply is considering a project that has projected cash inflows of $8,400 a year...
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Nelson’s Industrial Supply is considering a project that has projected cash inflows of $8,400 a year for 3 years. The initial cost of the project is $21,000 and the required return is 10.75 percent. Should this project be accepted based on the profitability index criterion? Why or why not? multiple choice: Multiple Choice
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Homework Answers
Profitability Index = Present value of cash inflows/Initial Investment
= 8400*PVAF(10.75%, 3 years)/21000
= 8400*2.4544/21000
= 0.98178
i.e. 0.98
The project is acceptable if PI is greater than 1
Hence, the answer is
no; because the PI is .98
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