A project has a required return of 15% and a five year life. Which of the following is inconsistent with the other four?
A) The discounted payback is five years
B) PI = 0
C) NPV = $0
D) IRR = 15%
E) The present value of the future cash flows equals the initial outlay

Question

Quizplus · Accepted Answer

The Profitability Index (PI) is calculated as the present value of future cash flows divided by the initial investment. If the NPV is $0 (as stated in option C), this means the present value of future cash flows equals the initial investment, implying the PI should be 1, not 0 as stated in option B.

A Project Has a Required Return of 15% and a Five