The Profitability Index Is Useful in a Capital Rationing Situation

question 18

Multiple Choice

The profitability index is useful in a capital rationing situation because

• A) it helps identify projects by the amount of value created per dollar invested.
• B) if followed, then it is only necessary to take the projects with the highest PI first.
• C) it will rank the best project to be taken in an absolute manner.
• D) none of the above.

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Definitions:

Population Standard Deviation

Population Standard Deviation is a measure of the dispersion or spread of all the values in a given population, indicating how much the individual values in the population differ from the population mean.

Sample Size

The number of observations or data points collected in a sample, which impacts the precision of statistical results.

Standard Error

A measure of the accuracy of a sample mean by describing the dispersion of sample means around the population mean.

Population Standard Deviation

A measure of the amount of variation or dispersion of a set of values in an entire population.