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The profitability index makes up for what drawback to the NPV method? no objective decision criterion...

The profitability index makes up for what drawback to the NPV method? no objective decision criterion the NPV's reinvestment rate assumption the lack of consideration of cashflows occurring late in the project's life the NPV being an absolute (not relative) measure

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Answer is NPV being an absolute (not relative) measure

Net present value method of evaluation of capital budgeting considers time value of money and discounts cash flows to present value and deducts initial investment to see the net present value. If NPV is positive project is accepted. NPV is a widely used method to evaluate capital budgeting but it considers absolute value of net present value which does not give true picture of evaluation when multiple projects are evaluated. The reason being NPV is absolute amount and it does not consider relative % to initial investment. Hence to overcome this draw back Profitablity index is used which makes up for this drawback of NPV

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