An investment has a cost of $40,000, and net cash flows of $15,000 each year for four years. The net present value of the investment is $10,000. What is the profitability index?

 An investment has a cost of $40,000, and net cash flows of $15,000 each year for four years. The net present value of the investment is $10,000. What is the profitability index?

multiple choice
0.67
4
0.25 Correct
1.5

Explanation
Knowledge Check 01
 
Profitability index = Present value of net cash flows of $10,000 ÷ Investment of $40,000 = 0.25.