GK
ACCOUNTING
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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Less than Zero
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Less than one
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Less than Two
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Less than five
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Detailed explanation-1: -The rule is that a profitability index or ratio greater than 1 indicates that the project should proceed. A profitability index or ratio below 1 indicates that the project should be abandoned.
Detailed explanation-2: -PI equal to one means that there are no profits. Thus, profitability index helps investors in making decisions about whether or not to make a particular investment.
Detailed explanation-3: -3. Profitability Index method: If the value determined is more than 1 then the project must be accepted on the other hand if the value if less than 1 it should be rejected.
Detailed explanation-4: -The profitability index (PI) is a measure of a project’s or investment’s attractiveness. The PI is calculated by dividing the present value of future expected cash flows by the initial investment amount in the project.
Detailed explanation-5: -The profitability index is the ratio between the initial amount invested in a project and the present value of future cash flows. The higher a profitability index means a project has benefits and would be considered more attractive.