Which of the Following Best Describes the Profitability Index

question 133

Multiple Choice

Which of the following best describes the profitability index?

• A) an index of projects based on their net income
• B) the ratio of present value of net cash inflows to initial investment
• C) the ratio of total cash inflows to initial investment
• D) an array of possible investment outcomes at different discount rates

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Definitions:

Efficiency

Efficiency in an economic context refers to the optimal production and allocation of resources to maximize the satisfaction of needs and wants with minimal waste.

Edgeworth Box Diagram

A graphical representation used in economics to show various distributions of resources and to demonstrate the efficiency of markets.

Production Possibilities Frontier

A curve depicting all maximum output possibilities for two or more goods given a set of inputs, assuming all resources are fully and efficiently utilized.

Input Price Ratio

The ratio of the prices of the inputs used in the production of goods or services.