We Calculate the Profitability Index of a Capital-Budgeting Proposal by

question 19

Multiple Choice

We calculate the profitability index of a capital-budgeting proposal by

• A)multiplying the IRR by the cost of capital.
• B)dividing the present value of the annual after-tax cash flows by the cost of capital.
• C)dividing the present value of the annual after-tax cash flows by the cost of the project.
• D)multiplying the cash inflow by the IRR.

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Definitions:

Fundamentally Different Industries

are industries that vary greatly in their nature, operations, market dynamics, and regulatory environments.

Expected Return

The anticipated amount of profit or loss an investment generates, based on historical data or probabilistic estimates.

Dividend

A payout to shareholders from a company's earnings, reflecting the company's earning power and success.

Stock Price

The current price at which a share of a company is being traded on the stock market.