A project's profitability index is equal to the ratio of the ______ of a project's future cash flows to the project's ______.

Question

Quizplus · Accepted Answer

Profitability index is calculated by dividing the present value of future cash flows by the initial cash outlay. Therefore, option A accurately represents the formula for calculating the profitability index. Option B includes net present value which is not a part of the formula for calculating profitability index. Option C includes average investment which is not relevant to the calculation of profitability index. Option D includes net present value which, as mentioned before, is not a part of the formula for calculating profitability index.

A Project's Profitability Index Is Equal to the Ratio of the ______