You need to borrow $2,000 quickly, and the local pawn shop will give it to you if you promise to repay them $200.92 monthly over the next year.

Suppose the pawn shop has more customers than funds. Which capital budgeting technique would allow it to rank potential customers in order to maximize current wealth?
A) AAR
B) Payback period
C) Profitability index
D) NPV
E) Discounted payback

Question

You need to borrow $2,000 quickly, and the local pawn shop will give it to you if you promise to repay them $200.92 monthly over the next year.

Suppose the pawn shop has more customers than funds. Which capital budgeting technique would allow it to rank potential customers in order to maximize current wealth?
A) AAR
B) Payback period
C) Profitability index
D) NPV
E) Discounted payback

Quizplus · Accepted Answer

The Profitability Index (PI) is a capital budgeting technique that helps rank investment opportunities by comparing the present value of cash inflows to the initial investment. It is useful for maximizing current wealth when funds are limited, as it allows the pawn shop to prioritize customers who offer the highest return per dollar invested.

You Need to Borrow $2,000 Quickly, and the Local Pawn