Present value of future cash flows is divided by an initial cost of project to calculate_______?
Correct answer: D. Profitability index
- A. Negative index
- B. Exchange index
- C. Project index
- D. Profitability index
Explanation
Profitability index is calculated as the present value of future cash flows divided by the initial project cost. It measures the value created per unit of investment, unlike the other listed terms.
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About Business Finance
Business finance explains how organisations plan, obtain and use money while balancing risk, return and liquidity. Topics include financial statements, time value of money, budgeting, working capital, capital structure, sources of finance, investment appraisal and cost of capital. Capital budgeting evaluates long-term projects, whereas working capital manages day-to-day operations.
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