If a project has a positive net present value (NPV), then the profitability index is:
A) greater than one
B) less than one
C) equal to one
D) negative

Question

Quizplus · Accepted Answer

A positive NPV indicates that the project's cash inflows exceed the initial investment. The profitability index (PI) is a ratio of the present value of cash inflows to the initial investment. Since the project has a positive NPV, the present value of cash inflows is higher than the initial investment, resulting in a PI greater than one. A PI greater than one indicates that the project is expected to generate a positive return and is a good investment.

If a Project Has a Positive Net Present Value (NPV)