If a Project Costing $80,000 Has a Profitability Index of 1.00

question 44

Multiple Choice

If a project costing $80,000 has a profitability index of 1.00 and the discount rate was 12%, then the present value of the net cash flows was

• A) $80,000.
• B) less than $80,000.
• C) greater than $80,000.
• D) undeterminable.

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Definitions:

Capital Budgeting Analysis

Capital budgeting analysis is the process of evaluating and selecting long-term investments that are in alignment with the goal of a company's shareholders' wealth maximization.

Opportunity Cost

The cost of choosing one option over another, representing the benefits an individual, investor, or business misses out on when choosing one alternative over another.

Stand-Alone Principle

A method of evaluating a project or investment by analyzing its viability and potential profitability as if it were the only project the company is undertaking.

Incremental Costs

Additional costs that a company incurs when increasing production or undertaking new projects.