Use of a Profitability Index to Select Projects in the Absence

question 79

Multiple Choice

Use of a profitability index to select projects in the absence of capital rationing:

• A)Will provide the same rankings as an NPV criterion
• B)Will maximize NPV, but not IRR
• C)Can result in misguided selections
• D)is technically impossible

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Definitions:

Managers' Actions

Decisions and activities undertaken by the management of a company to achieve its objectives.

Cash Bidding Price

The price a buyer offers to pay in cash for a specific asset during a competitive bidding process.

Common Stock

A type of equity ownership in a corporation, representing a claim on part of the company's profits and assets.

Market Price

The current price at which an asset or service can be bought or sold in a given market.