If managers only invest in projects that have a profitability index greater than 1.0:
A)the firm will increase in value
B)the manager will be forced to explain to stockholders why the net worth of the firm is declining
C)the value of the firm's stock should remain constant
D)the cash flows of the firm should decrease
E)the net losses of the firm should increase

Question

Quizplus · Accepted Answer

Only investing in projects with a profitability index greater than 1.0 means that the projects will generate more cash inflows than outflows, increasing overall profitability and value of the firm.

If Managers Only Invest in Projects That Have a Profitability