The profitability index for the project which requires an investment of $1,400 and has a net present value of $400 with internal rate of return 12% is 1.286 (rounded).
<h3>What is net present value? </h3>
It is a method to calculate the current value of a future stream of payments from a company, project, or investment. To calculate NPV, you need to estimate the timing and amount of future cash flows and pick a discount rate equal to the minimum acceptable rate of return.
How to calculate the profitability index for the project?
First, we will use the net present value formula
NPV = Present value of inflows - present value of outflows
400 = present value of inflows - 1400
present value of inflows = 1400 + 400 = 1800
Next, we want to calculate the profitability index to answer the question
Profitability index = present value of inflows / present value of outflows
= (1800 / 1400)
= 1.286 (rounded)
Learn more about net present value brainly.com/question/17162144
#SPJ4
