Question

If an investment has a(n) ___________ of 1.2 it can be said that the investment generates $1.20 in present value benefits for each dollar of invested costs.

A) profitability index
B) net present value
C) internal rate of return
D) payback period
E) average accounting return

Answer 1

The correct answer is A) profitability index. It measures the ratio of present value benefits to invested costs.

Step-by-step explanation:

The correct answer to the question is A) profitability index.

The profitability index measures the ratio of present value benefits to the invested costs. If an investment has a profitability index of 1.2, it means that for each dollar of invested costs, it generates $1.20 in present value benefits.

For example, if the invested costs are $100, the present value benefits would be $120 (1.2 times $100).