Based on the Profitability Index Rule,should a Project with the Following

question 81

Multiple Choice

Based on the profitability index rule,should a project with the following cash flows be accepted if the discount rate is 14 percent? Why or why not?

• A)Yes; The PI is 0.96.
• B)Yes; The PI is 0.80.
• C)Yes; The PI is 1.08.
• D)No; The PI is 0.96.
• E)No; The PI is 0.80.

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Definitions:

Marginal Cost

The supplementary cost involved in creating one more unit of a product or service.

Monopoly

A monopoly is a market structure characterized by a single seller controlling a large portion of the market, lacking significant competition, and often able to influence prices.

Natural Monopoly

A market structure where a single firm can produce the entire market's supply at a lower cost than could multiple firms due to economies of scale.

Economies of Scale

Economies of scale refer to the cost advantage experienced by a firm when it increases its level of output. The advantage arises due to the inverse relationship between per-unit fixed cost and the quantity produced.