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The present value of future cash flows divided by the initial project cost is called ____________?

The profitability index (PI) is calculated by dividing the present value of future cash inflows by the initial cost of the project. It is a key capital budgeting tool used to measure a project’s relative profitability. A PI greater than... Read More

1 FINANCE MCQS

The present value of future cash flows divided by the initial project cost is called ____________?

  • Negative index
  • Exchange index
  • Project index
  • Profitability index
Correct Answer: D. Profitability index

Detailed Explanation

The profitability index (PI) is calculated by dividing the present value of future cash inflows by the initial cost of the project. It is a key capital budgeting tool used to measure a project’s relative profitability. A PI greater than 1 indicates an acceptable project.

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