A Firm Uses the Profitability Index to Select Between Two

question 79

Multiple Choice

A firm uses the profitability index to select between two mutually exclusive investments.If no capital rationing has been imposed, which project should be selected?

• A)select the project with the higher profitability index.
• B)select the project with the lower profitability index.
• C)without capital rationing, both projects can be selected.
• D)without capital rationing, select by NPV method.

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Definitions:

Business Combination

The process of merging two or more entities into one, through various forms such as acquisitions, consolidations, or mergers.

Acquired Company

A company that has been purchased or taken over by another company, often through a merger or acquisition.

Consolidated Results

Financial statements that show the aggregate of parent company and subsidiary performances as if they were a single company.

Separate Incorporation

The process by which a new corporation is formed as a distinct legal entity, separate from its owners.