GK
ACCOUNTING
Question
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NPV is addictive in nature


NPV is linearly proportionate to part of the project taken up


Both (a) and (b)


Project cannot be taken in parts

Detailed explanation1: when applied to divisible projects impliedly assumes that project cannot be taken in parts has to be accepted fully, NPV is linearly proportionate to part of the project taken up and NPV is additive in nature. Was this answer helpful?
Detailed explanation2: The profitability index is also called the profit investment ratio (PIR), costbenefit ratio, or the value investment ratio (VIR).
Detailed explanation3: The profitability index rule is a decisionmaking exercise that helps evaluate whether to proceed with a project. The index itself is a calculation of the potential profit of the proposed project. The rule is that a profitability index or ratio greater than 1 indicates that the project should proceed.
Detailed explanation4: The Profitability Index (PI) measures the ratio between the present value of future cash flows and the initial investment. The index is a useful tool for ranking investment projects and showing the value created per unit of investment.
Detailed explanation5: Profitability Index = (Net Present value + Initial investment) / Initial investment. Profitability Index = 1 + (Net Present value / Initial investment)