The Profitability Index Is

question 40

Multiple Choice

The profitability index is

• A)the ratio of net cash flows to the original investment.
• B)the ratio of the present value of cash flows to the original investment.
• C)a capital budgeting evaluation technique that doesn't use discounted values.
• D)a mandatory technique when capital rationing is useD.

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Definitions:

GAAP

Generally Accepted Accounting Principles, a set of rules and standards designed to improve the clarity, consistency, and comparability of financial reporting across industries in the United States.

Deferred Income Taxes

Taxes owed for the current period but not yet required to be paid, due to differences between financial accounting and tax reporting.

Temporary Difference

Differences between accounting income and taxable income that are expected to reverse in the future, affecting deferred tax calculations.

Permanent Difference

Transactions that cause a difference between the tax basis and the book value of assets and liabilities, which will not reverse over time.