A positive profitability index indicates a positive net present value.

Profitability Index

A financial tool that calculates the ratio between the present value of cash inflows and the present value of initial investment, often used in capital budgeting.

Net Present Value

The difference between the present value of cash inflows and the present value of cash outflows over a period of time, used in capital budgeting to analyze the profitability of an investment.

Understand the method of net present value and its significance in the process of capital budgeting.

Verified Answer

Kinisha SimonJun 19, 2024

Final Answer :

True

Explanation :

A positive profitability index means that the present value of future cash inflows exceeds the present value of the initial investment, yielding a positive net present value.

Learning Objectives

Understand the method of net present value and its significance in the process of capital budgeting.

A positive profitability index indicates a positive net present value.

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Learning Objectives

Learning Objectives

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