Asked by Ashley Lowell on Jul 04, 2024

verifed

Verified

Profitability index employs some sort of arbitrary value against which the project measurement must be compared when determining whether to accept or reject a project.

Profitability Index

A financial tool used to measure the relative profitability of an investment, calculated by dividing the present value of future cash flows by the initial investment cost.

Arbitrary Value

A value that is decided without a specific standard or measure, often based on personal judgment or preference.

  • Gain proficiency in the use of the profitability index (PI) for investment appraisal.
verifed

Verified Answer

CS
Chisha SulweJul 10, 2024
Final Answer :
False
Explanation :
Profitability index calculates the ratio of the present value of future expected cash flows to the initial investment, providing a direct measure of the value created per unit of investment, without using an arbitrary value for comparison.