Question

mpted: 18
The present value index is computed
by dividing the
Initial investment by the total cash flows
O Total cash flows by the initial investment
Initial investment by the present value of cash
flows
Present value of cash flows by the initial
investment​

Answer 1

Answer:

The answer is Present value of cash flows by the initial investment.

Explanation:

• The lowest acceptable measure of Profitability index is 0.1 , the value lower than this number would represents the Project's Present value (PV) which is less than the initial investment.
• $Profitability Index = \frac{PV of the future cash flows}{Initial Investment}$
• Profitability Index is also known as Profit Investment Ratio or it is also known as Value Investment Ratio.
• Profitability Index defines the relationship between the benefits of Project proposed and the costs.
• If the PI value is higher it shows that the project will be considered more attractive project.

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