Provide answer general Accounting question Understanding Profitability Index (PI)⚫ PI = Present Value of Future Cash Flows Initial Investment..0.310 represents the profitability index, not the ratio using (NPV +Initial Investment)

Step 1: Define Understanding Profitability Index (PI)The Profitability Index (PI) is a financial…

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Principles of Accounting Volume 2

19th Edition

ISBN:9781947172609

Author:OpenStax

Publisher:OpenStax

Chapter11: Capital Budgeting Decisions

Section: Chapter Questions

Problem 14MC: This calculation determines profitability or growth potential of an investment, expressed as a...

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Which of the following discounts future cash flows to their present value at the expected rate of return, and compares that to the Initial Investment? A. internal rate of return (IRR) method B. net present value (N PV) C. discounted cash flow model D. future value method
The profitability index is calculated by _________. Multiple choice question. dividing the initial investment by the sum of the future cash flows dividing the sum of the future cash flows by the initial investment dividing the PV of the future cash flows by the initial investment dividing the initial investment by the PV of the future cash flows
The present value of an investment's future cash flows divided by its initial cost is the: O Net present value. O Internal rate of return. O Average accounting return. O Profitability index. O Payback period.
The Profitability Index (PI) is a financial metric that depends only on the Present Value (PV) of expected future cash inflows. This statement is: a False. b Only partly true. c True d Only partly false.
n is the number of periods of an investment, PV is the starting value, FVn is the future value n periods ahead, and ^ means 'to the power of'. What is the correct formula for calculating return? a)(PV/FVn)^n - 1 b)(FVn/PV)^n c)1 - (FVn/PV)^n d)(FVn/PV)^n - 1
Consider the calculation of an external rate of return (ERR). The positive cash flows in the cash flow profile are moved forward to t = n using what value of i in the (F|P,i,n–t) factors? a. 0 b. The unknown value of ERR (i′) c. MARR d. IRR.
Which one of the following is an indicator that an investment is acceptable? Check all that apply: Profitability index equal 1.5 Profitability index greater than 0 the required return less than internal rate of return IRR equal to zero Payback period exceeds the required period Profitability index equal 1
Which method does not consider the time value of money? Choose the correct. A. Net present value B. Internal Rate of Return C. Average rate of return D. Profitability Index
Which of the following is the correct definition for present value (PV)? Select one: a. The current value of the sum of all the past cash flows given a specified rate of return. b. The current value of the sum of all the future profits made by the company with a specified rate of return. c. The current value of a future sum of money or stream of cash flows given a specified rate of return. d. The future value of the sum of all the future cash flows without a specified rate of return.
explain the net present value NPV (investment projects) of cash flow CF and the yield (using formulas)
In using the two-step approach to Enterprise Valuation (EV), where EV = the Present Value of Planning Period Cash Flows (PVPPCF) + the Present Value of Terminal Value at the end of the Planning Period (PVTV), the PVTV calculation can be based on: a. Level annual cash flows discounted as a perpetuity. b. The Gordon Growth Model. c. An EBITDA multiple. d. All of the above. e. None of the above.
The internal rate of return (IRR) is The same thing as the cost of capital. The discount rate that equates the present values of cash inflows and cash outflows. The same thing as the net present value. The same thing as the profitability index.

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Understanding Profitability Index (PI) ⚫ PI = Present Value of Future Cash Flows Initial Investment . . 0.310 represents the profitability index, not the ratio using (NPV + Initial Investment)