If a project with conventional cash flows has a profitability index of 1.0, the project will:
A)never pay back.
B)have a negative net present value.
C)have a negative internal rate of return.
D)produce more cash inflows than outflows in today's dollars.
E)have an internal rate of return that equals the required return.

Question

Quizplus · Accepted Answer

A profitability index of 1.0 indicates that the present value of cash inflows equals the present value of cash outflows, meaning the net present value (NPV) is zero. This implies that the internal rate of return (IRR) equals the required return.

If a Project with Conventional Cash Flows Has a Profitability