Cresol Corporation Has a Large Number of Potential Investment Opportunities

question 60

Multiple Choice

Cresol Corporation has a large number of potential investment opportunities that are acceptable. However, Cresol does not have enough investment funds to invest in all of them. Which calculation would be the best one for Cresol to use to determine which projects to choose?

• A) payback period
• B) simple rate of return
• C) net present value
• D) project profitability index

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Definitions:

Times Interest Earned Ratio

The times interest earned ratio is a financial metric used to measure a company's ability to meet its debt obligations by comparing its income before interest and tax (EBIT) to its interest expenses.

Interest Expense

The cost incurred by an entity for borrowed funds over a period of time.

Inventory Turnover Ratio

A measure of how often a company sells and replaces its stock of goods during a period, calculated as cost of goods sold divided by average inventory.

Gross Profit

The difference between revenue and the cost of goods sold before deducting overhead, payroll, taxation, and interest payments.