Question

The profitability index (PI) rule can be best stated as:

a. An investment is acceptable if its PI is less than one.
b. An investment is acceptable if its PI is less than its payback.
c. An investment is acceptable if its PI is greater than one.
d. An investment is acceptable if its PI is less than the net present value (NPV).
e. An investment is acceptable if its PI is greater than the internal rate of return (IRR).

Answer 1

The profitability index (PI) rule can be best stated as: An investment is acceptable if its PI is greater than one.

Step-by-step explanation:

The profitability index (PI) rule can be best stated as: c. An investment is acceptable if its PI is greater than one. The profitability index, also known as the profit investment ratio, is a financial ratio that measures the potential profitability of an investment. It is calculated by dividing the present value of cash inflows by the present value of cash outflows. An investment is considered acceptable if its PI is greater than one, as this indicates that the present value of the expected cash inflows is greater than the present value of the initial investment.