If a project's profitability index is less than 1, then
A) its net present value is zero.
B) its net present value is positive.
C) it should be rejected.
D) its internal rate of return is greater than the discount rate.

Question

Quizplus · Accepted Answer

A profitability index of less than 1 means that the present value of the future cash inflows is less than the initial investment, indicating that the project will not generate enough profit to exceed its costs. Therefore, it is not financially advisable to pursue such a project and it should be rejected.

If a Project's Profitability Index Is Less Than 1, Then