Without Using Formulas, Provide a Definition of Profitability Index (PI)

question 48

Multiple Choice

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

• A) A ranking method used to assess projects. PI greater than 1 signify positive NPV projects, while PI less than 1 signify negative NPV projects.
• B) A project analysis tool that determines the amount of time required for an investment to generate cash flows to recover its initial cost.
• C) 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.
• D) 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.
• E) 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.