A positive NPV will always generate a profitability index above 0.

Question

Quizplus · Accepted Answer

NPV measures the difference between the present value of cash inflows and the present value of cash outflows over a period of time. A positive NPV means that the present value of cash inflows is greater than the present value of cash outflows, indicating a profitable investment. The profitability index is calculated by dividing the present value of cash inflows by the initial investment, and since a positive NPV means that the present value of cash inflows is greater than the initial investment, the profitability index will always be above 0.

A Positive NPV Will Always Generate a Profitability Index Above