The question states whether the profitability index equals the present value of net cash inflows from the investment divided by the cost of the investment. The correct answer is true.
The payoff to investment ratio of a proposed project is known as the profitability index, sometimes referred to as the profit investment ratio and value investment ratio. It is a helpful tool for project ranking since it makes it possible to calculate the value generated per investment.
For a series of cash flows that happen at various dates, the net present value or net present worth is used. The amount of time until a cash flow is expected determines its present value. The discount rate also plays a role. The temporal value of money is accounted for by NPV.
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