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    Profitability index

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    Zellars, Inc. Is considering two projects.

    Project A costs $75,000 and is expected to generate $48,000 in year one and $45,000 in year two.
    Project B costs $80,000 and is expected to generate $34,000 on year one, $37,000 in year two, $26,000 in year three, and $25,000 in year four.

    Zellars, Inc.'s required rate of return for these projects is 10%. The profitability index for Project A is?

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    Solution Preview

    Profitability Index = PV of cash flows/Initial Investment
    For Project ...

    Solution Summary

    The solution explains how to calculate the profitability index for a project.