The ________ method of capital budgeting is a ratio of the present value of cash inflows divided by the initial investment.
A)payback period
B)net present value
C)internal rate of return
D)profitability index

Question

Quizplus · Accepted Answer

The profitability index is calculated by dividing the present value of future cash flows by the initial investment. It is a helpful method for assessing the value of capital budgeting projects because it considers both the magnitude and timing of expected cash flows. The higher the profitability index, the more attractive the project. Therefore, D is the correct choice as it describes the method most accurately.

The ________ Method of Capital Budgeting Is a Ratio of the Present