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:

Economic Profit

The difference between a firm's total revenue and its total costs, including both explicit and implicit costs, reflecting the financial gain exceeding the opportunity cost of resources used.

Accounting Profit

Net income of a company is determined by deducting total expenses from total revenues, in line with established accounting norms.

Implicit Costs

The opportunity costs associated with a company's resources that are not directly paid out in cash but represent foregone alternatives.

Opportunity Costs

The cost of forgoing the next best alternative when making a decision.