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:

Demand

The quantity of a good or service that consumers are willing and able to purchase at various prices during a given period.

Compound Return

It refers to the phenomenon where the interest earned on an investment is reinvested to earn additional interest, leading to exponential growth over time.

Inflation

The rate at which the general level of prices for goods and services is rising, eroding purchasing power.

Stock Holdings

The shares of stock that an individual or institution owns in various companies.