The Profitability Index (PI)is Particularly Useful in Comparing Mutually Exclusive

question 152

Multiple Choice

The profitability index (PI) is particularly useful in comparing mutually exclusive projects:

• A)with different IRR's.
• B)of different lengths.
• C)of different sizes.
• D)where the IRR and NPV select different projects.
• E)in all of the above situations.

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Definitions:

Average Total Cost

The total cost of production (fixed plus variable costs) divided by the total quantity produced, representing the cost per unit of output.

Marginal Costs

The cost incurred by producing one additional unit of a product or service.

Market Price

The amount at which a good or service is currently sold in the market, determined by supply and demand.

Produce

To create, manufacture, or grow goods and services for consumption or sale.