a project would be acceptable if a. the net present value is positive b. the pay

Question

a project would be acceptable if

a. the net present value is positive
b. the payback is greater than the discounted equivalent annual annunitu
c. the equivalent annual annunity is greater than or equal to the firms discount rate
d. the profitability index is greater than the net present value

Explanation / Answer

a) is correct. Profitability Index (PI) = (Net Present Value (NPV) + Initial Investment) / Initial Investment If PI > 1, Good Investment - If PI < 1, Bad Investment there is a linear relationship between NPV and PI. Here it is: - If Profitability Index > 1, NPV is Positive (+) - If Profitability Index < 1, NPV is Negative (-

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