Which method is designed to give the dollar amount of return for every $1.00 invested in the project in terms of current dollars?
A)Profitability Index Method
B)Internal Rate of Return Method
C)Net Present Value Method
D)Discounted Payback Period Method

Question

Quizplus · Accepted Answer

The Profitability Index Method (PI) is designed to measure the value of a project in terms of dollars returned for every $1.00 invested in the project in terms of current dollars. PI is calculated by dividing the present value of total cash inflows by the present value of total cash outflows. A PI greater than 1.0 indicates that the project is expected to generate a positive return for every $1.00 invested, whereas a PI less than 1.0 indicates that the project is expected to generate a negative return for every $1.00 invested. Thus, the PI method is best suited to evaluate the profitability of a project.

Which Method Is Designed to Give the Dollar Amount of Return