An investment is acceptable if the proﬁtability index (PI) of the investment is:
A) Greater than one.
B) Less than one.
C) Greater than the internal rate of return (IRR).
D) Less than the net present value (NPV).
E) Greater than a pre-speciﬁed rate of return.

Question

Quizplus · Accepted Answer

A profitability index (PI) greater than one indicates that the present value of the future cash flows from the investment exceeds the initial investment. This means that the investment is generating positive returns and is acceptable. A PI of less than one would indicate that the present value of the future cash flows is less than the initial investment, meaning the investment is not generating enough returns to be acceptable. Therefore, option A is the correct answer.

An Investment Is Acceptable If the Proﬁtability Index (PI) of the Investment