When there is an option to delay,a good rule of thumb is to invest only when ________.
A) the internal rate of return is at least 1
B) the net present value is at least 1
C) the payback period is at least 1
D) the profitability index is at least 1

Question

Quizplus · Accepted Answer

The profitability index takes into consideration the time value of money, which means it provides a better indication of the profitability of an investment compared to other metrics such as the payback period or internal rate of return. A profitability index of at least 1 indicates that the project's present value of cash inflows exceeds the present value of outflows, suggesting that investing in the project is financially viable. Therefore, when there is an option to delay, a good rule of thumb is to invest only when the profitability index is at least 1.

When There Is an Option to Delay,a Good Rule of Thumb