Which of the Following Statements Is FALSE

question 56

Multiple Choice

Which of the following statements is FALSE?

• A)If there is a fixed supply of a resource available,you should rank projects by the profitability index,selecting the project with the lowest profitability index first and working your way down the list until the resource is consumed.
• B)Practitioners often use the profitability index to identify the optimal combination of projects when there is a fixed supply of resources.
• C)If there is a fixed supply of resources available,so that you cannot undertake all possible opportunities,then simply picking the highest NPV opportunity might not lead to the best decision.
• D)The profitability index is calculated as the NPV divided by the resources consumed by the project.

---

Definitions:

Recognizing Profit

The process of formally acknowledging and recording income on the financial statements when it is earned, regardless of when the cash is received.

Reasonably Assured

A level of certainty in the ability to achieve a particular outcome, often used in the context of revenue recognition and lease agreements.

Interest Component

The portion of a financial transaction or instrument (such as a loan or bond) that represents the charged or paid interest over the principal amount.

Periodic Cash Flows

Regular, repeated payments or receipts of money during the life of an investment, project, or financial asset.