The profitability index is most closely related to which one of the following?
A)payback
B)discounted payback
C)average accounting return
D)net present value
E)modified internal rate of return

Question

Quizplus · Accepted Answer

The profitability index (PI) is calculated by dividing the present value of cash inflows by the initial investment. This index indicates how much value a project will bring in for every unit of investment. The net present value (NPV) method also involves calculating the present value of cash inflows and subtracting the initial investment. Therefore, the profitability index is most closely related to the net present value method.

The Profitability Index Is Most Closely Related to Which One