Question

Using the profitability index method, the present value of cash inflows for project flower is $88,000 and the present value of cash inflows of project plant is $48,000. if project flower and project plant require initial investments of $90,000 and $40,000, respectively, and have the same useful life, the project that should be accepted is

Answer 1

im not so sure yu should ask somebody thats really good in math sorry i couldnt help

Answer 2

The plant project should be accepted as it has the highest profitability index of 1.20 in comparison to the flower project.

What is meant by profitability index?

The profitability index is one of the methods of capital budgeting which is determined by dividing the annual cash flows at present value by the cost of investment.

   Particulars                           Flower Project             Plant Project

A) PV of cash inflows                   $88,000                        $48,000

B) Initial Investment                      $90,000                        $40,000

C) Profitability index (A) / (B)          0.97                                1.20

As the highest profitability index corresponds to the Plant project with an index of 1.20, therefore, the plant project should be ideally accepted.

Learn more about the profitability index in the related link:

https://brainly.com/question/16009245

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