If the NPV of a project is greater than 0, then its profitability index is:
A)greater than 1.
B)greater than 0.
C)less than 1.
D)None of the choices.

Question

Quizplus · Accepted Answer

The profitability index is calculated by dividing the present value of future cash flows by the initial investment. If the NPV is greater than 0, it means that the present value of cash inflows is greater than the initial investment, which would result in a profitability index greater than 1 (as the numerator is greater than the denominator). Therefore, choice A is the correct answer.

If the NPV of a Project Is Greater Than 0