The profitability index provides an advantage over the net present value method by reporting the present value of benefits per dollar invested.

Question

Quizplus · Accepted Answer

The profitability index, also known as the profit investment ratio or the value investment ratio, divides the present value of future cash flows by the initial investment. This index provides a ratio that shows how much present value you will earn for each dollar invested. Therefore, it reports the present value of benefits per dollar invested and provides an advantage over the net present value method.

The Profitability Index Provides an Advantage Over the Net Present