If a Project's Profitability Index Is Greater Than 1, Then

question 42

Multiple Choice

If a project's profitability index is greater than 1, then the

• A) project should always be accepted.
• B) project's net present value is negative.
• C) project's internal rate of return is less than the discount rate.
• D) project should be accepted if funds are available.

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Definitions:

Real Rate of Interest

The interest rate that has been adjusted to remove the effects of inflation, showing the real earning power of an investment.

Inflation Rate

A situation where the overall cost of goods and services climbs, causing the value of money to diminish.

Annual Percentage Rates (APRs)

A measure of the cost of credit, expressed as a yearly interest rate, that includes interest, fees, and other charges associated with the loan.

Compound Interest

Interest calculated on the initial principal which also includes all of the accumulated interest from previous periods on a deposit or loan.