The profitability index is used to compare the internal rates of return of two companies with different investment amounts

Question

Quizplus · Accepted Answer

The profitability index is a capital budgeting tool used to evaluate the attractiveness of an investment by comparing the present value of its future cash flows to the initial investment. It does not compare the internal rates of return (IRR) of two companies.

The Profitability Index Is Used to Compare the Internal Rates