If a project has a profitability index greater than 1,
A)the NPV will also be positive.
B)the internal rate of return (IRR)will be higher than the required rate of return.
C)the present value of future cash flows will exceed the amount invested in the project.
D)all of the above.

Question

Quizplus · Accepted Answer

If a project has a profitability index greater than 1, it means that the present value of future cash flows is greater than the amount invested, which also implies that the NPV will be positive. Additionally, since the profitability index is calculated by dividing the PV of future cash flows by the initial investment, a profitability index greater than 1 indicates that the PV of future cash flows is more than the initial investment, and so the IRR will also be higher than the required rate of return. Therefore, all three statements are true, and the correct answer is D.

If a Project Has a Profitability Index Greater Than 1