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What is the profitability index of this project

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Question - A project costing $6,200 initially should produce cash inflows of $2,860 per year at the end of Year 2, Year 3, and Year 4. The project will be shut down and will be sold at the end of Year 4 for an estimated net cash amount of $3,300.

a) What is the profitability index of this project if the required rate of return is 11.3 percent?

b) There is a second project which has a credible profitability index of 1.80. If your financial condition only allows you to invest one of the two projects, which would you go based on their profitability indices?

Reference no: EM133169031

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