The Present Value Index Indicates

question 21

Multiple Choice

The present value index indicates:

• A) the time it will take to recover the initial cash outflow of an investment.
• B) the additional cash inflows from operating activities.
• C) the rate of return per dollar invested in a capital project.
• D) the ratio of the net present value of an investment to the initial investment.

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Definitions:

Depreciation

The systematic allocation of the cost of a tangible asset over its useful life, reflecting its consumption, wear and tear, or obsolescence.

Scenario Analysis

This method involves evaluating potential future scenarios to understand how varying conditions can influence business operations or investment outcomes.

Best-case Scenario

The optimal or most favorable outcome that can be expected under certain conditions.

Worst-case Scenario

The most severe potential outcome for a situation, often used in risk management and planning.