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 the firm 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

Accepting projects with a profitability index greater than 1.5 ensures that the project returns more cash than the initial investment. This should increase the value of the firm, making option A the correct answer. Option B is incorrect as accepting profitable projects would not cause the firm to lose value. Option C is incorrect as the profitability index does not directly impact the price of the firm's stock. Option D and E are also incorrect as both the net present value and internal rate of return of profitable projects should be positive.

Which One of the Following Is True If the Managers