Use of a profitability index to select projects in the absence of capital rationing:
A)Will provide the same rankings as an NPV criterion
B)Will maximize NPV, but not IRR
C)Can result in misguided selections
D)is technically impossible

Question

Quizplus · Accepted Answer

The profitability index can lead to misguided selections because it does not account for the scale of the projects, potentially favoring smaller projects with higher ratios over larger projects with higher total NPVs.

Use of a Profitability Index to Select Projects in the Absence