The Profitability Index for a Project Costing $40,000 and Returning

question 86

Multiple Choice

The profitability index for a project costing $40,000 and returning $15,000 annually for four years at an opportunity cost of capital of 12 percent is:

• A)0.139
• B)0.320
• C)0.500
• D)0.861

Apply the concept of investment turnover and its impact on return on investment.

Distinguish between investment centers, profit centers, and cost centers.

Calculate and interpret residual income.

Understand the concept of transfer pricing and its approaches.

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Definitions:

Good Faith

The honest intention to act without taking an unfair advantage over another party in a transaction.

Reasonable Commercial Standards

The accepted norms and practices within a particular industry or trade that are considered to be fair and appropriate.

Demand Instrument

A demand instrument is a financial document that requires payment of a specified sum of money immediately upon demand or within a short time frame.

Overdue

Refers to something being past its expected or scheduled time, often used in the context of payments or tasks.