The ratio between the present value of a project's cash inflows and the present value of its initial investment is called the:

Question

Quizplus · Accepted Answer

The ratio between the present value of a project's cash inflows and the present value of its initial investment is known as the Profitability Index (PI). The PI method is used to determine whether or not to proceed with a project by measuring the value created per unit of investment. A PI greater than 1 indicates that the project has a positive net present value and should be undertaken, whereas a PI less than 1 indicates that the project should be abandoned because it would result in a net loss. Therefore, the correct answer is C) PI.

The Ratio Between the Present Value of a Project's Cash