You were recently hired by a firm as a project analyst. The owner of the firm is unfamiliar with financial analysis and only wants to know what the expected dollar return is per dollar spent on a given project. Which financial method of analysis will provide the information that the owner requests?
A) Internal rate of return
B) Modified internal rate of return
C) Net present value
D) Profitability index
E) Payback

Question

Quizplus · Accepted Answer

The profitability index measures the present value of cash inflows generated by a project against the initial investment in the project. It calculates the amount of return generated for every dollar invested. Therefore, it provides the expected dollar return per dollar spent on a project.

You Were Recently Hired by a Firm as a Project