Which of the following would cause the Profitability Index to be higher?

Question

Quizplus · Accepted Answer

The Profitability Index is calculated by dividing the present value of the future cash flows by the initial investment. Therefore, a higher NPV would increase the present value of the future cash flows and, consequently, increase the Profitability Index. Conversely, a lower NPV would decrease the present value of the future cash flows and reduce the Profitability Index. Higher cost would reduce the initial investment, and thus reduce the Profitability Index. Therefore, only a higher NPV would cause the Profitability Index to be higher.

Which of the Following Would Cause the Profitability Index to Be