An investment is acceptable if the profitability index (PI) of the investment is:
A) Greater than one.
B) Less than one.
C) Greater than the internal rate of return (IRR).
D) Less than the net present value (NPV).
E) Greater than a pre-specified rate of return.

Question

Quizplus · Accepted Answer

The profitability index (PI) is a measure used to evaluate the attractiveness of an investment. It is calculated as the present value of future cash flows divided by the initial investment. If the PI is greater than one, it means that the present value of returns exceeds the initial investment, indicating that the investment is expected to be profitable and therefore acceptable.

An Investment Is Acceptable If the Profitability Index (PI) of the Investment