Question

The present value index is computed as ________. total present value of net cash flow divided by amount to be invested cost divided by amount to be invested total future value of net cash flows divided by amount to be invested None of these choices are correct.

Answer 1

Answer:

total present value of net cash flow divided by amount to be invested

Explanation:

The formula to determine the present value index is given below:

Present value index is

= Total present value of net cash flow ÷ initial investment

It is the method that should be applied for an investment decision for capital rationing

So, the first option is correct