Project a Has a Profitability Index of 0

question 44

Multiple Choice

Project A has a profitability index of 0.85. Project B has a profitability index of 1.24. The two projects are independent. Which of the following statements is (are) true?

• A)Only Project B should be accepted since it is the only one of the two projects that will maximize value.
• B)Both projects should be accepted since they are independent and each one has a profitability index greater than zero.
• C)Both Project A and Project B will have net present values that are greater than zero.
• D)Both A and C are true statements.

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Definitions:

Carrying Costs

Costs related to maintaining inventory that encompass storage fees, insurance, taxes, and the potential losses from not using the funds elsewhere.

Ideal Level

Ideal level often refers to the optimal state or condition for operations, efficiency, or functionality in various contexts.

Letter Of Credit

A written statement by a bank that money will be paid, provided conditions specified in the letter are met.

Factored Inventory Loan

A type of financing where a company borrows money against the value of its inventory, which is often controlled or managed by the lender.