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

Question

Quizplus · Accepted Answer

A positive net present value means that the present value of future cash inflows exceeds the initial cost of the project. The profitability index is calculated as the present value of future cash inflows divided by the initial cost of the project. Since the present value of future cash inflows is greater than the initial cost, the profitability index will be greater than one.

If a Project Has a Positive Net Present Value, Its