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

Question

Quizplus · Accepted Answer

The profitability index is the ratio of the present value of future cash flows to the initial investment. It is calculated as:

Profitability Index = Present Value of Future Cash Flows / Initial Investment

When the profitability index is greater than 1.00, it means that the present value of future cash flows is greater than the initial investment, and the project has a positive net present value. Therefore, the answer is true.

When the Profitability Index Is Greater Than 1