When the profitability index is less than 1.00 for a project, that project has a positive net present value.

Question

Quizplus · Accepted Answer

The profitability index is calculated by dividing the present value of the future cash flows by the initial investment. If the result is less than 1.00, it means that the present value of the future cash flows is less than the initial investment, indicating a negative net present value.

When the Profitability Index Is Less Than 1