ECONOMICS

Detailed explanation-1: -The given statement is True. The Profitability Index considers the discounted cashflows using the required return rate. It also takes into account the original size of the investment.

Detailed explanation-2: -Although the Protability Index does not stipulate the amount of cash return from a capital investment, it does provide the cash return per dollar invested. The index can be thought of as the discounted cash inow per dollar of discounted cash outow.

Detailed explanation-3: -The answer is c. Profitability, by definition, is calculated as the ratio of present value of inflow to the present value of the outflows.

Detailed explanation-4: -Profitability index method measures the present value of benefits for every dollar investment. In other words, it involves the ratio that is created by comparing the ratio of the present value of future cash flows from a project to the initial investment in the project.

Detailed explanation-5: -You can use discounting cashflow to evaluate potential investments. There are two types of discounting methods of appraisal-the net present value (NPV) and internal rate of return (IRR).