When the present value of the cash inflows exceeds the initial cost of a project,then the project should be:
A)accepted because the internal rate of return is positive.
B)accepted because the profitability index is greater than 1.
C)accepted because the profitability index is negative.
D)rejected because the internal rate of return is negative.
E)rejected because the net present value is negative.

Question

Quizplus · Accepted Answer

The profitability index (PI) measures the present value of the future cash inflows of a project relative to the initial cost of the project. If the PI is greater than 1, it means the project's present value of cash inflows exceeds the initial cost and the project should be accepted. Therefore, option B is the correct answer. Options A, C, D, and E are all incorrect because they offer irrelevant information or incorrect reasoning.

When the Present Value of the Cash Inflows Exceeds the Initial