Based on the profitability index (PI) rule, should a project with the following cash flows be accepted if the discount rate is $8 \%$ ? Why or why not?

A)yes; because the PI is 1.008
B)yes; because the PI is .992
C)yes; because the PI is .999
D)no; because the PI is 1.008
E)no; because the PI is .992

Question

Based on the profitability index (PI) rule, should a project with the following cash flows be accepted if the discount rate is $8 \%$ ? Why or why not?

A)yes; because the PI is 1.008 
B)yes; because the PI is .992 
C)yes; because the PI is .999 
D)no; because the PI is 1.008 
E)no; because the PI is .992

Quizplus · Accepted Answer

The Profitability Index (PI) rule states that a project should be accepted if the PI is greater than 1.0. In this case, the PI is 0.992, which is less than 1.0. Therefore, the project should not be accepted.

Based on the Profitability Index (PI) Rule, Should a Project 8%8 \%8%

Based on the Profitability Index (PI) Rule, Should a Project $8 \%$