The profitability index equals the present value of net cash inflows from the investment divided by the cost of the investment.

Question

Quizplus · Accepted Answer

The profitability index (PI) is calculated by dividing the present value of expected future cash flows from an investment by the cost of the investment. The formula for PI is: PI = PV of Future Cash Flows / Initial Investment. Therefore, the statement is true.

The Profitability Index Equals the Present Value of Net Cash