Capital Rationing

question 24

Multiple Choice

Capital rationing. TuleTime Comics is considering a new show that will generate annual cash flows of $100,000 into the infinite future. If the initial outlay for such a production is $1,500,000 and the appropriate discount rate is 6 per cent for the cash flows, then what is the profitability index for the project?

• A) 0.11
• B) 0.90
• C) 1.11
• D) 1.90

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Definitions:

Attitude Change

This is the process by which an individual's attitudes are influenced and modified through various means, such as persuasion, social influence, or personal experience.

Mindlessness

The act of agreeing to a request without giving it thought. A small request is likely to be agreed to, even if a spurious reason is provided.

Acquiescent Response

A tendency to agree with or accept something passively, rather than expressing one's own opinion or dissent.

Elaboration-Likelihood Model

A theory suggesting two primary pathways (central and peripheral) that influence the ability of a message to persuade.