Which of the following is correct regarding profitability indices (PI)?
A)The higher the PI, the lower the ranking.
B)The lower the PI, the lower the ranking.
C)A project with a PI above 1.0 should be accepted.
D)Both B and C are correct regarding profitability indices.

Question

Quizplus · Accepted Answer

Profitability Index (PI) is a measure used to evaluate the attractiveness of an investment or project. A higher PI indicates a more attractive investment because it means that for every unit of currency invested, there is a higher return. Therefore, a project with a PI above 1.0 indicates that the project's present value of future cash flows exceeds the initial investment, suggesting it should be accepted. This makes both statements B and C correct: a lower PI would indeed result in a lower ranking among potential investments, and a project with a PI above 1.0 is generally considered acceptable.

Which of the Following Is Correct Regarding Profitability Indices (PI)