GK
ACCOUNTING
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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NPV is addictive in nature
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NPV is linearly proportionate to part of the project taken up
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Both (a) and (b)
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Project cannot be taken in parts
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Detailed explanation-1: -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 explanation-2: -The profitability index is also called the profit investment ratio (PIR), cost-benefit ratio, or the value investment ratio (VIR).
Detailed explanation-3: -The profitability index rule is a decision-making 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 explanation-4: -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 explanation-5: -Profitability Index = (Net Present value + Initial investment) / Initial investment. Profitability Index = 1 + (Net Present value / Initial investment)