An Investment Is Acceptable If the Profitability Index (PI) of the Investment

question 143

Multiple Choice

An investment is acceptable if the profitability index (PI) of the investment is:

• A) Greater than one.
• B) Less than one.
• C) Greater than the internal rate of return (IRR).
• D) Less than the net present value (NPV).
• E) Greater than a pre-specified rate of return.

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Definitions:

Fixed Manufacturing Overhead

Refers to the stable costs associated with producing goods, such as factory rent and salaries, which do not change regardless of production levels.

Profit-Maximizing Result

The outcome in which a firm achieves the highest possible profit given its constraints and market conditions.

Overhead Allocation

The process of distributing indirect costs to different products, services, projects, or departments within a company.

Direct Labor Hour

The amount of time spent by workers in producing a product or service.