Determining the profitability index for investment


Dizzyland Enterprises has been presented with an investment opportunity which will yield end-of-year cash flows of $30,000 per year in Years 1 through 4, $35,000 per year in Years 5 through 9, and $40,000 in Year 10. This investment will cost the firm $150,000 today, and the firm's cost of capital is 10%. What is the profitability index for this investment?

a. 1.28

b. 0.87

c. 1.85

d. 0.21

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Finance Basics: Determining the profitability index for investment
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