If a project has a profitability index of 1.20, then the project's internal rate of return is
A) equal to the discount rate.
B) less than the discount rate.
C) greater than the discount rate.
D) equal to 20%.

Question

Quizplus · Accepted Answer

A profitability index greater than 1 indicates that the project's net present value is positive, which means that the project's internal rate of return is greater than the discount rate. Therefore, the correct choice is C, greater than the discount rate. Option D is incorrect. Although the profitability index is equal to 1.20, it does not mean that the internal rate of return is equal to 20%.

If a Project Has a Profitability Index of 1