A company is considering a $12,000 investment in a project with the following predicted cash flows in the subsequent four years: $5,300; $4,000; $3,800, and $3,000. It requires a 15% return. What is the profitability index for this investment, and what does it suggest?
Because the profitability index is 1.04, the company should accept the opportunity.
Because the profitability index is 1.04, the company should reject the opportunity.
Because the profitability index is 0.987, the company should accept the opportunity.
Because the profitability index is 0.987, the company should reject the opportunity.