Final answer:
When the profitability index is greater than 1.0, it means that the project is expected to generate more cash inflows than the initial investment cost, indicating a positive return on investment. Other factors should also be considered in investment decision-making.
Step-by-step explanation:
The profitability index is a measure used in investment analysis to determine the potential profitability of a project. When the profitability index is greater than 1.0, it means that the project is expected to generate more cash inflows than the initial investment cost. In other words, it suggests that the project is expected to be profitable.
For example, if a project has a profitability index of 1.5, it indicates that for every $1 invested, the project is expected to generate $1.50 in cash inflows. This indicates a positive return on investment and suggests that the project is financially viable. It's important to note that the profitability index is just one factor to consider in investment decision-making. Other factors such as the project's payback period, risk, and market conditions should also be taken into account.