When the present value of the cash inflows exceeds the initial cost of a project, then the project should be:
A) accepted because the payback period is less than the required time period.
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 positive.

Question

When the present value of the cash inflows exceeds the initial cost of a project, then the project should be: 
A) accepted because the payback period is less than the required time period. 
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 positive.

Quizplus · Accepted Answer

When the present value of the cash inflows exceeds the initial cost of a project, it means the profitability index (PI) is greater than 1. The PI is calculated as the present value of future cash flows divided by the initial investment. A PI greater than 1 indicates that the project is expected to generate more value than its cost, making it a financially viable option.

When the Present Value of the Cash Inflows Exceeds the Initial