Which one of the following is true if the managers of a firm accept only projects that have a profitability index greater than 1.5?
A)The firm should increase in value each time it accepts a new project.
B)The firm is most likely steadily losing value.
C)The price of the firm's stock should remain constant.
D)The net present value of each new project is zero.
E)The internal rate of return on each new project is zero.

Question

Quizplus · Accepted Answer

A profitability index greater than 1 indicates that the present value of future cash flows from a project exceeds the initial investment, thus increasing the firm's value. A profitability index greater than 1.5 suggests a significant increase in value with each accepted project.

Which One of the Following Is True If the Managers