Based on the Profitability Index (PI)rule,should a Project with the Following

question 105

Multiple Choice

Based on the profitability index (PI) rule,should a project with the following cash flows be accepted if the discount rate is 7%? Why or why not?

• A)Yes; because the PI is 1.008
• B)Yes; because the PI is .992
• C)Yes; because the PI is .999
• D)No; because the PI is 1.008
• E)No; because the PI is .992

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Definitions:

Profit-Maximizing Output

The level of production at which a firm achieves the maximum possible profits, considering its costs of production and the market price of its goods or services.

Total Revenue

The total income generated from selling goods or services before any expenses are deducted.

Market Price

The current price at which a good or service can be bought or sold in a particular market.

Firm

An organization, especially one involved in business or commerce, that produces and sells goods or services.