If a Project Has a Profitability Index Greater Than 1

question 70

Multiple Choice

If a project has a profitability index greater than 1

• A)the NPV will also be positive.
• B)the IRR will be higher than the required rate of return.
• C)the present value of future cash flows will exceed the amount invested in the project.
• D)all of the above.

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Definitions:

Marginal Cost

The added financial burden from producing one more unit of a product or service.

Marginal Revenue

The surplus revenue earned from the sale of an extra unit of a product or service.

Profit

The earnings obtained when income from a business endeavor outstrips the total expenses, costs, and taxes necessary to maintain that endeavor.

Marginal Revenue

The additional income that is gained from selling one more unit of a product or service.