For a Project That Has an Initial Cash Outflow Followed

question 17

True/False

For a project that has an initial cash outflow followed by cash inflows, the profitability index (PI) is equal to the present value of cash inflows divided by the cost of capital.

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Definitions:

Compounding

The process where the value of an investment increases because the interest it earns itself earns interest.

Discounting

The process of determining the present value of a payment or series of payments that will be made in the future, often used in finance to compare investment opportunities.

Accumulate

To gather or collect items over time, often for accounting or quantitative measurement purposes.

Invested at

Typically implies allocating resources, such as time or money, into a venture, asset, or project with the expectation of receiving future returns.