The profitability index provides the same accept/reject decision result as the net present value (NPV) method but would not necessarily rank mutually exclusive projects the same way.

Question

Quizplus · Accepted Answer

The profitability index measures the ratio of the present value of cash inflows to the initial investment, while the net present value measures the difference between the present value of cash inflows and the initial investment. Therefore, they provide the same accept/reject decision result but may rank mutually exclusive projects differently.

The Profitability Index Provides the Same Accept/reject Decision Result as the Net