Skip to content

CMA Final · Strategic Financial Management · Investment Decisions, Project Planning and Control

Ganga Engineering is considering a project with an initial outlay of Rs 4,00,000 and cash inflows of Rs 1,60,000 per year for 4 years. Annuity factor at 15% for 4 years is 2.855 and at 20% for 4 years is 2.589. Using this data, the profitability index at 15% is closest to:

The profitability index at 15% is about 1.14. Present value of inflows is Rs 1,60,000 times 2.855, which is Rs 4,56,800, and dividing by the Rs 4,00,000 outlay gives 1.142, indicating a positive NPV.

  1. A1.14Correct
  2. B0.88
  3. C1.40
  4. D1.60

Explanation

PV of inflows = 1,60,000 x 2.855 = 4,56,800. PI = 4,56,800 / 4,00,000 = 1.142. The 0.88 option inverts the ratio, and 1.60 divides undiscounted inflows by outlay per year incorrectly.

Did you get it right without looking?

One question tells you little. A timed set on Investment Decisions, Project Planning and Control shows your real accuracy, how long you take and where you lose marks.

Practise Investment Decisions, Project Planning and ControlFree diagnostic mock

More Investment Decisions, Project Planning and Control questions