When long-term investment funds are the constraint and the company is choosing from among potential long-term projects, the profitability index should be computed by dividing the net present value of a project by the expected total revenues from the project.

Question

Quizplus · Accepted Answer

The profitability index should be computed by dividing the net present value of a project by the expected total costs of the project, not revenues.

When Long-Term Investment Funds Are the Constraint and the Company