A project profitability index greater than zero for a project indicates that:
A) the discount rate is less than the internal rate of return.
B) there has been a calculation error.
C) the project is unattractive and should not be pursued.
D) the company should reevaluate its discount rate.

Question

Quizplus · Accepted Answer

A project profitability index greater than zero indicates that the present value of the expected cash inflows is greater than the present value of the cash outflows and that the project is expected to generate positive net cash flows. This implies that the project's internal rate of return is greater than the discount rate, which makes the project attractive and should be pursued. Thus, option A is the correct answer. Options B, C, and D are incorrect.

A Project Profitability Index Greater Than Zero for a Project