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:

Benzene

A colorless, volatile liquid hydrocarbon with a distinctive aromatic odor, consisting of a ring of six carbon atoms each bonded to one hydrogen, used as a solvent and in chemical synthesis.

Benzene

A volatile, aromatic hydrocarbon with a ring structure, used as a base material in the production of various chemicals and plastics.

Functional Group

An atom or group of atoms within a molecule that is responsible for the characteristic chemical reactions of the molecule.

Ketone

an organic compound characterized by a carbonyl group linked to two alkyl or aryl groups.