If the internal rate of return on a project is 11.24%, and the project is assigned a 9.5% discount rate,
then the proﬁtability index will be greater than 1.0.

Question

Quizplus · Accepted Answer

A project's profitability index is calculated by dividing the present value of its future cash flows by the initial investment. If the internal rate of return exceeds the discount rate, then the present value of the future cash flows will be greater than the initial investment, resulting in a profitability index greater than 1.0. In this case, the internal rate of return (11.24%) exceeds the discount rate (9.5%), so the profitability index will be greater than 1.0.

If the Internal Rate of Return on a Project Is