Which of the statements below is TRUE?
A)According to the profitability index (PI)decision criterion when the PI is greater than 1,the costs exceed the benefits.
B)If we realize that NPV is the present value of the benefits minus the present value of the costs,then we simply need to subtract the costs from the NPV to get the present value of the benefits.
C)There are two acceptable projects,but we can only take one due to a shortage of funds.The PI for these two projects are: Project A: 2.25; Project B: 1.89.We would take Project B.
D)A PI of 1.50 can be interpreted as meaning that for every $1.00 invested today the firm gets back $1.50 in current dollars.

Question

Quizplus · Accepted Answer

The Profitability Index (PI) is a measure used to evaluate the attractiveness of an investment or project. A PI of 1.50 means that for every $1.00 invested, the firm expects to receive $1.50 in return, in present value terms. This indicates that the project is expected to generate a 50% return on the investment in present value terms, making statement D true.

Which of the Statements Below Is TRUE