A capital budgeting technique that can be computed by subtracting a project's initial investment from the present value of its cash inflows discounted at a rate equal to a firm's cost of capital is called profitability index.

Question

Quizplus · Accepted Answer

The described technique is actually the Net Present Value (NPV), not the Profitability Index. The Profitability Index is calculated by dividing the present value of future cash inflows by the initial investment.

A Capital Budgeting Technique That Can Be Computed by Subtracting