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Provide a definition of profitability index

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Reference no: EM132579620

Without using formulas, provide a definition of profitability index (PI).

Multiple Choice

  • A project analysis tool that measures the acceptability of a project by determining the amount of profit that can be expected based on an investment made.
  • A project analysis tool that measures the acceptability of a project by determining the length of time required for an investment's discounted cash flows to equal its initial cost.
  • A project analysis tool that measures the acceptability of a project through the difference between a project's initial investment and whether the present value of its cash flow will repay the investment.
  • A project analysis tool that determines the amount of time required for an investment to generate cash flows to recover its initial cost.
  • A ranking method used to assess projects. PI greater than 1 signify positive NPV projects, while PI less than 1 signify negative NPV projects.

Reference no: EM132579620

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