The Profitability Index

question 104

Multiple Choice

The profitability index

• A) does not take into account the discounted cash flows.
• B) is calculated by dividing total cash flows by the initial investment.
• C) allows comparison of the relative desirability of projects that require differing initial investments.
• D) will never be greater than 1.

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Definitions:

Leap Years

Years that contain 366 days instead of the usual 365, with an extra day added to February, occurring every four years to maintain the calendar year's alignment with the Earth's revolutions around the Sun.

Interest Computation

The process of calculating the amount of interest due on a loan or investment based on the principal amount, rate, and time.

Maturity Date

The specific date on which the principal amount of a loan, bond, or other financial instrument is due to be paid back in full.

Leap Years

Years that are divisible by 4 (and if it's a century year, it must be divisible by 400), adding an extra day, February 29, to the calendar to keep it synchronized with Earth's orbit around the Sun.