Asked by Taira DeSutter on Jul 15, 2024
Verified
Projects with a profitability index of greater than 1 have a return that is greater than the hurdle rate.
Profitability Index
The profitability index measures the relationship between the present value of future cash flows and the initial investment.
Hurdle Rate
The minimum rate of return on a project or investment required by a manager or investor.
- Master the concept of net present value and its utility in the realm of capital budgeting.
- Comprehend the strategies employed in evaluating and ranking investment ventures.
Verified Answer
JY
Jessica YoungJul 20, 2024
Final Answer :
True
Explanation :
The profitability index assesses the present value of future cash flows and compares it to the initial investment. If the profitability index is greater than 1, it means that the present value of the future cash flows is higher than the initial investment, indicating a positive return that is greater than the hurdle rate.
Learning Objectives
- Master the concept of net present value and its utility in the realm of capital budgeting.
- Comprehend the strategies employed in evaluating and ranking investment ventures.
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