A firm plans to use 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, the NPV method must be used instead

Question

Quizplus · Accepted Answer

Without capital rationing, the NPV method should be used to select between mutually exclusive projects, as it directly measures the value added by the project.

A Firm Plans to Use the Profitability Index to Select