Which one of the following is true if the managers of a firm only accept projects that have a profitability index greater than 1.5?
A) The firm should increase in value each time the firm accepts a new project.
B) The firm is most likely steadily losing value.
C) The price of the firm's stock should remain constant.
D) The net present value of each new project is zero.
E) The internal rate of return on each new project is zero.

Question

Quizplus · Accepted Answer

A profitability index greater than 1.5 means that the project's present value of cash inflows is 1.5 times higher than the project's initial investment. This indicates that the project is expected to generate a substantial return for the firm, and accepting such projects should lead to an increase in the firm's overall value.

Which One of the Following Is True If the Managers