Which of the Following Statements Is False

question 77

Multiple Choice

Which of the following statements is false?

• A) If there is a fixed supply of resources 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.

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Definitions:

Fixed Cost

A cost that does not change with an increase or decrease in the amount of goods or services produced or sold.

Per Unit Basis

A method of expressing costs, pricing, or other financial measures on a per single unit of product or service basis.

Indirect Costs

Expenses not directly tied to a specific product or service, such as overheads, that are necessary for running a business.

Variable Costs

Costs that change in proportion to the level of production or sales activity, such as raw materials and direct labor.