We Compute the Profitability Index of a Capital-Budgeting Proposal by

question 37

Multiple Choice

We compute the profitability index of a capital-budgeting proposal by

• A) multiplying the IRR 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 cost of the project.
• D) multiplying the cash inflow by the IRR.

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Definitions:

Journal Entries

Records of financial transactions in the accounts of a business, providing a chronological order of all debits and credits.

Liquidation

The process of winding up a company's financial affairs by selling its assets to pay off its debts, eventually leading to the dissolution of the company.

Liquidator's Receipts

The proceeds collected by a liquidator during the process of winding up a company, distributed to claimants and creditors according to statutory priorities.

Joint Arrangements

Agreements between two or more parties to undertake an economic activity that is subject to joint control.