Question
8. The Profitability index (PI) of a project is the ratio of the PDV of future cashflows to the initial cash investment required. Suppose, a
8. The Profitability index (PI) of a project is the ratio of the PDV of future cashflows to the initial cash investment required. Suppose, a ski resort can spend upto $1 million towards one or more of 6 candidate projects which are listed below along with the capital requirement and PIs of these projects
| Project | Initial Capital Required | PI |
| 1 | $500,000 | 1.22 |
| 2 | $150,000 | 0.95 |
| 3 | $350,000 | 1.20 |
| 4 | $450,000 | 1.18 |
| 5 | $200,000 | 1.19 |
| 6 | $400,000 | 1.05 |
If the hurdle rate is 10%, which of these projects should be undertaken?
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Auditing The Risk Management Process
Authors: K. H. Spencer Pickett
1st Edition
0471690538, 978-0471690535
