What Would a Project's Profitability Index Be If the Project

question 85

Multiple Choice

What would a project's profitability index be if the project has an internal rate of return which is equal to the company's discount rate?

• A)It would be 0.5.
• B)It would be 0.0.
• C)It would be 1.0.
• D)It cannot be determined from information provided

---

Definitions:

Contribution Margin Ratio

A financial metric that shows how much of a company's revenue is available after variable costs to cover fixed costs and generate profit.

Unit Contribution Margin

The difference between the selling price per unit and the variable cost per unit, showing how much each unit contributes to covering fixed costs and generating profit.

Fixed Costs

Costs that do not vary with the level of production or sales, such as rent, salaries, and insurance premiums.

Contribution Margin Ratio

A measurement that shows how much of a company's revenue is available to cover fixed expenses and generate profit after variable costs are covered.