If an investment has a project profitability index of 0.15,then the:
A)project's internal rate of return is 15%.
B)discount rate is greater than the project's internal rate of return.
C)net present value of the project is positive.
D)the discount rate is 15%.

Question

Quizplus · Accepted Answer

A project profitability index (PPI) of 0.15 indicates that for every dollar invested, the project is expected to return $1.15. This means that the net present value (NPV) of the project is positive, since the PPI formula is calculated as NPV of cash inflows divided by initial investment. Therefore, choice C is correct. Choice A is incorrect because the PPI does not directly relate to the internal rate of return (IRR). Choice B is incorrect because the PPI does not provide information about the relationship between the discount rate and the project's IRR. Choice D is incorrect because the PPI of 0.15 does not necessarily mean that the discount rate is also 15%.

If an Investment Has a Project Profitability Index of 0