Asked by Gordana Zezovski on Jun 22, 2024
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If financial managers only invest in projects that have a profitability index greater than one, then shareholder wealth will be maximized.
Profitability Index
A financial tool used to determine the relative profitability of an investment, calculated as the present value of future cash flows divided by the initial investment cost.
Shareholder Wealth
The total value of all financial and capital assets owned by the shareholders of a company, aimed to be maximized through corporate strategies.
- Comprehend and utilize the profitability index (PI) for assessing investments.
- Understand the effects of investment decisions on the valuation of a firm, its share price, and the wealth of its shareholders.
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Learning Objectives
- Comprehend and utilize the profitability index (PI) for assessing investments.
- Understand the effects of investment decisions on the valuation of a firm, its share price, and the wealth of its shareholders.
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