Fora project with conventional cash ﬂows, if NPV is greater than zero, then:
A) The IRR is equal to the ﬁrm's required rate of return.
B) The proﬁtability index is greater than 1.
C) The payback period is faster than the ﬁrm's required cutoff point.
D) The AAR exceeds the IRR.
E) The project does not pay back on a discounted payback basis.

Question

Quizplus · Accepted Answer

A positive NPV indicates that the project's present value of cash inflows exceeds the present value of cash outflows, which means that the project is profitable. The profitability index (PI) is the ratio of the present value of benefits to the present value of costs, and a PI greater than 1 indicates that the project is expected to create value for the company. Therefore, choice B is correct. Choices A, C, D, and E are not necessarily true based solely on a positive NPV.

Fora Project with Conventional Cash ﬂOws, If NPV Is Greater