For a project with conventional cash flows, if NPV is greater than zero, then:
A) The IRR is equal to the firm's required rate of return.
B) The profitability index is greater than 1.
C) The payback period is faster than the firm's required cutoff point.
D) The AAR exceeds the IRR.
E) The project does not pay back on a discounted payback basis.

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 greater than zero, it means the present value of future cash flows exceeds the initial investment, leading to a PI greater than 1.

For a Project with Conventional Cash Flows, If NPV Is