If a Company Has Computed the Project Profitability Index of an Investment

question 61

Multiple Choice

If a company has computed the project profitability index of an investment project as 0.15,then:

• A)the project's internal rate of return is less than the discount rate.
• B)the project's internal rate of return is greater than the discount rate.
• C)the project's internal rate of return is equal to the discount rate.
• D)the relation between the rate of return and the discount rate is impossible to determine from the given data.

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Definitions:

Prime Costs

The sum of direct materials cost and direct labor cost, representing the primary costs involved in producing a product.

Finished Goods Inventory

The stock of completed products ready for sale but not yet sold, representing a current asset on the balance sheet.

Manufacturer

A company or individual that creates goods using raw materials and components through various processes, labor, and machinery.

Work in Process

Inventory that includes materials that are in the process of being manufactured but are not yet completed products.