Corporate Finance Q57

57A perpetual after-tax cash flow stream of $2,000 is created by an investment of $15,000. The required rate of return is 8 percent. The investment’s profitability index is closest to:

Option : B
Explanation : The present value of future cash flows is PV = 2,000/0.08 = 25,000. The profitability index is PI = PV / Investment = 25,000 / 15,000 = 1.67.

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