We Compute the Profitability Index of a Capital Budgeting Proposal

question 12

Multiple Choice

We compute the profitability index of a capital budgeting proposal by

• A) multiplying the internal rate of return by the cost of capital.
• B) dividing the present value of the annual after-tax cash flows by the cost of capital.
• C) dividing the present value of the annual after-tax cash flows by the cash investment in the project.
• D) multiplying the cash inflow by the internal rate of return.

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Definitions:

Tax Burden

The measurement of taxes paid by individuals or businesses, often expressed as a percentage of income or GDP.

Market Participants

Individuals or entities involved in the buying, selling, or regulation of goods and services within a market.

Price Ceilings

A government-imposed limit on the price charged for a product, intended to keep prices affordable for consumers.

Black Market

An illegal trading system where goods or services are exchanged in a way that is not authorized by the government, often to avoid taxes or regulations.