The profitability index is closely related to:
A) payback.
B) discounted payback.
C) average accounting return.
D) net present value.
E) internal rate of return.

Question

Quizplus · Accepted Answer

The profitability index is calculated by dividing the present value of future cash flows by the initial investment. This makes it closely related to the net present value, which also involves discounting future cash flows to their present value and subtracting the initial investment. The other options, payback, discounted payback, average accounting return, and internal rate of return, do not directly involve calculating the present value of future cash flows.

The Profitability Index Is Closely Related To