The profitability index is the ratio of:
A)average net income to average investment.
B)present value of cash flows to initial investment cost.
C)net present value of cash flows to internal rate of return.
D)net present value of cash flows to average accounting return.
E)internal rate of return to current market interest rate.

Question

Quizplus · Accepted Answer

The profitability index is calculated as the present value of cash flows divided by the initial investment cost. This ratio provides a measure of the investment's return per unit of investment. Therefore, option B - present value of cash flows to initial investment cost is the correct answer.

The Profitability Index Is the Ratio Of