The profitability index of a proposed investment project will be:
A)equal to 1.0 if the net present value is positive.
B)negative if the proposed investment meets the cost of capital target.
C)less than 1.0 if the net present value is negative.
D)greater than 1.0 if the cost of capital exceeds the internal rate of return.

Question

Quizplus · Accepted Answer

The profitability index is less than 1.0 when the net present value is negative, indicating that the present value of future cash flows is less than the initial investment.

The Profitability Index of a Proposed Investment Project Will Be