An investment project with a project profitability index of 0.04 has an internal rate of return that is less than the discount rate.

Question

Quizplus · Accepted Answer

If a project has a project profitability index greater than 1, it means that the net present value of the project is positive, and the project is expected to be profitable. A project profitability index of 0.04 implies that the net present value of the project is positive but not significant. However, the internal rate of return (IRR) of the project is the discount rate at which the net present value of the project is zero. If the IRR is less than the discount rate, it means that the project's net present value is negative, and the project is not expected to be profitable. Since a project with a negative net present value cannot have a project profitability index greater than 1, the statement in the question is false, and the answer is B.

An Investment Project with a Project Profitability Index of 0