When using a profitability index to select projects,a value of 0.63 is preferred over a value of 0.21.

Question

Quizplus · Accepted Answer

A profitability index is a financial metric used to evaluate the potential profitability of an investment. The profitability index formula is the present value of cash inflows divided by the initial investment. A profitability index of greater than 1 indicates a profitable investment, while a profitability index of less than 1 indicates an unprofitable investment. Since a profitability index of 0.63 is greater than a profitability index of 0.21, it is preferred because it indicates a higher potential for profitability.

When Using a Profitability Index to Select Projects,a Value of 0.63