If a project has a negative net present value, its profitability index will be
A) one.
B) greater than one.
C) less than one.
D) undeterminable.

Question

Quizplus · Accepted Answer

If a project has a negative net present value (NPV), it means that the present value of cash outflows exceeds the present value of cash inflows. Profitability index (PI) is calculated by dividing the present value of cash inflows by the present value of cash outflows. Since the present value of cash outflows is greater than the present value of cash inflows, the PI will be less than one. Therefore, the correct answer is C.

If a Project Has a Negative Net Present Value, Its