Compute the profitability index of the investment, Accounting Basics

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Compute the profitability index of the investment

Question:

Texas Flooring is interested in purchasing a computer and software that would allow its salespeople to demonstrate to customers how a finished carpet installation would appear. Managers have estimated the cost of the computer, software, and peripheral equipment to be $30,000. Based on this cost, the managers have determined that the net present value of the investment is $5,000. Compute the profitability index of the investment (ignore tax).

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Accounting Basics: Compute the profitability index of the investment

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