Nelson's Industrial Supply is considering a project that has projected cash inflows of $6,000 a year for 4 years. The initial cost of the project is $16,800 and the required return is 12.75 percent. Should this project be accepted based on the profitability index criterion? Why or why not? a. no; because the Pl is .58 b. yes; because the PI is .58 c. yes; because the PI is 1.07 d. no; because the PI is 1.07

Intermediate Financial Management (MindTap Course List)
13th Edition
ISBN:9781337395083
Author:Eugene F. Brigham, Phillip R. Daves
Publisher:Eugene F. Brigham, Phillip R. Daves
Chapter12: Capital Budgeting: Decision Criteria
Section: Chapter Questions
Problem 10P: Project S has a cost of $10,000 and is expected to produce benefits (cash flows) of $3,000 per year...
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Nelson's Industrial Supply is considering a project that
has projected cash inflows of $6,000 a year for 4 years.
The initial cost of the project is $16,800 and the required
return is 12.75 percent.
Should this project be accepted based on the profitability
index criterion? Why or why not?
a. no; because the Pl is .58
b. yes; because the PI is .58
c. yes; because the PI is 1.07
d. no; because the PI is 1.07
Transcribed Image Text:Nelson's Industrial Supply is considering a project that has projected cash inflows of $6,000 a year for 4 years. The initial cost of the project is $16,800 and the required return is 12.75 percent. Should this project be accepted based on the profitability index criterion? Why or why not? a. no; because the Pl is .58 b. yes; because the PI is .58 c. yes; because the PI is 1.07 d. no; because the PI is 1.07
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