Question

If the npv of a shop is R195000 and the profitability index is 1,24375, the initial investment in shop is?

Answer 1

$PI=(NPV+$ initial investment)$\div$ initial investment

$1.24375=(195 000+Initial \space investment)\div$$initial\space investment$

$1.24375 \times initial \space investment=195000+initial\space investment$

$1.24375\times initial\space investment-initial\space investment=195000$

$initial\space investment (1.24375 -1)=195000,\\ initial \space investment=195000/0.24374=800032.82$

the initial investment in shop is R800032.82