A firm uses the profitability index to select between two mutually exclusive investments.If no capital rationing has been imposed,which project should be selected?
A) Select the project with the higher profitability index.
B) Select the project with the lower profitability index.
C) Without capital rationing, both projects can be selected.
D)Without capital rationing, select by NPV method.

Question

Quizplus · Accepted Answer

Without capital rationing, the firm should select the project with the higher Net Present Value (NPV) rather than relying on the profitability index.

A Firm Uses the Profitability Index to Select Between Two