What is the discounted payback period of a project whose profitability index is higher than 1?...
What is the discounted payback period of a project whose profitability index is higher than 1?
A)Greater than the project lifetime
B)Not enough information to answer the question
C)Less than the project lifetime
D)Equal to the project lifetime
Homework Answers
The correct answer is C- Less than the project lifetime
Explanation
Where there is a profitability index higher than 1 it means that the present value of cash inflows are more than present value of cash outfows.
When the present value of cash inflows are more than the present value of cash outlfows it means that we are recovering the project cost well below the life of the project. if the project outflows cannot be recovered in the life of project, the Profitability index cannot be more than 1.
So less than the project lifetime is the correct answer.
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