An independent investment is acceptable if the profitability index (PI)of the investment is:
A)greater than 1.0.
B)less than 1.0.
C)greater than the internal rate of return.
D)less than the internal rate of return.
E)greater than a pre-specified rate of return.

Question

Quizplus · Accepted Answer

A profitability index (PI) greater than 1.0 indicates that the present value of future cash inflows from the investment is greater than the initial cost of the investment. Therefore, choosing an independent investment with a PI greater than 1.0 would be acceptable as it will create value for the firm.

An Independent Investment Is Acceptable If the Profitability Index (PI)of