The profitability index is the ratio of:
A) average net income to average investment.
B) internal rate of return to current market interest rate.
C) net present value of cash flows to internal rate of return.
D) net present value of cash flows to average accounting return.
E) present value of cash flows to initial investment cost.

Question

Quizplus · Accepted Answer

The profitability index is calculated as the present value of future cash flows divided by the initial investment cost. This index helps in determining the relative profitability of an investment.

The Profitability Index Is the Ratio Of