The present value of an investment's future cash flows divided by the initial cost of the investment is called the:
A) net present value.
B) internal rate of return.
C) average accounting return.
D) profitability index.
E) profile period.

Question

The present value of an investment's future cash flows divided by the initial cost of the investment is called the: 
A) net present value. 
B) internal rate of return. 
C) average accounting return. 
D) profitability index. 
E) profile period.

Quizplus · Accepted Answer

The profitability index is calculated by dividing the present value of future cash flows by the initial investment cost. This index is used to assess the attractiveness of an investment.

The Present Value of an Investment's Future Cash Flows Divided