Interpret a profitability index (PI) value of 0.95 for a proposed project.
Understand the Problem
The question is asking for an interpretation of a profitability index (PI) value of 0.95 for a proposed project. This involves understanding what a PI value indicates in the context of project feasibility.
Answer
The project should be rejected as it indicates a loss.
The project should be rejected as it indicates a loss.
Answer for screen readers
The project should be rejected as it indicates a loss.
More Information
A profitability index (PI) of less than 1 means that the project is not cost-effective, as it is generating less than the invested amount.
Tips
A common mistake is thinking that a PI just below 1 still indicates profitability; any PI less than 1 actually suggests a loss.
Sources
- Profitability Index (PI) Rule: Definition, Uses, and Calculation - investopedia.com
- What Is the Profitability Index (PI)? - Investopedia - investopedia.com
- Solved You are analyzing a proposed project and have | Chegg.com - chegg.com
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