The profitability index is the ratio of the
A)future value of cash flows to investment.
B)net present value of cash flows to investment.
C)net present value of cash flows to IRR.
D)present value of cash flows to IRR.

Question

Quizplus · Accepted Answer

The profitability index is the ratio of the net present value of cash flows to the initial investment. This ratio helps in evaluating whether the investment is profitable or not. A ratio greater than 1 indicates that the investment is profitable, and a ratio lesser than 1 indicates that the investment is not profitable. Therefore, the best choice is B, i.e., the net present value of cash flows to investment.

The Profitability Index Is the Ratio of the