The ratio of net present value to initial investment is known as the:
A) net present value.
B) internal rate of return.
C) payback period.
D) profitability index.

Question

Quizplus · Accepted Answer

The ratio of net present value to initial investment is known as the profitability index. This ratio is used to determine the profitability of a project and is calculated by dividing the net present value of the project by the initial investment. A profitability index greater than 1 indicates that the project is expected to be profitable, while a profitability index less than 1 indicates that the project is expected to be unprofitable. Therefore, D is the best choice.

The Ratio of Net Present Value to Initial Investment Is