Analysis Using the Profitability Index

question 45

Multiple Choice

Analysis using the profitability index:

• A)frequently conflicts with the accept and reject decisions generated by the application of
• The net present value rule.
• B)is useful as a decision tool when investment funds are limited.
• C)cannot be used to aid capital rationing.
• D)utilizes the same basic variables as those used in the average accounting return.
• E)produces results which typically are difficult to comprehend or apply.

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Definitions:

Competitive Equilibrium

A market situation where supply equals demand, ensuring no economic profit for firms in perfect competition.

Perfect Complements

Goods that are consumed together in fixed proportions, where the utility derived from consuming the combination is greater than the sum of utilities from consuming the goods separately.

Pure Exchange Economy

An economic model where there is no production, and agents trade endowments of goods that they own initially.

Utility Function

A mathematical representation of how consumers rank different bundles of goods according to the levels of satisfaction those goods provide.