The present value of future cash flows is divided by an initial cost of the project to calculate __________?
Correct answer: D. profitability index
- A. negative index
- B. exchange index
- C. project index
- D. profitability index
Explanation
The ratio of the present value of future cash flows to the project's initial cost is called the profitability index. It measures the present-value benefit generated per unit of investment.
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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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