Answer to Question #268321 in Financial Math for lavhe

Question

The net present value (NPV) of the Konka-Future Shop is R14 983 and the profitability index (PI) is 1,034. Approximately how much is the initial investment in the shop?

• A. R14 983
• B. R7 366
• C. R440 676
• D. R15 492
• E. R14 490

Answer 1

$Profitability Index = \frac{Net present value + Initial investment}{initial investment}$

$PI = \frac {NPV+IV}{IV}$

Finding initial investment

$1,034 = \frac {14983 + IV}{IV}$

$1,034IV = 14983+ IV$

$034IV = 14983$

$IV = \frac{14983}{034}$

Initial investment = $440 676$ (c.)