If a project costing $70,000 has a profitability index of 1 and the discount rate was 12%, then...
Question:
If a project costing $70,000 has a profitability index of 1 and the discount rate was 12%, then the present value of the net cash flows was:
A. greater than $70,000
B. undeterminable
C. $70,000
D. less than $70,000
Capital Budgeting:
Capital budgeting requires various techniques to determine if a project is profitable for the business and whether it should be taken up. These tools or techniques include internal rate of return, payback period, and profitability index.
Answer and Explanation: 1
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View this answerThe correct answer is C. $70,000 .
We are given the following data:
- Profitability index = 1
- Investment cost = $70,000
At a profitability index of...
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Capital Budgeting: Definition & Process
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Chapter 9 / Lesson 8
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Capital budgeting is used to manage money that is used by businesses to make large purchases that are used to create their products. Study the definition and process of capital budgeting, how it is used, and how the cash flows.
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