Roger's Meat Market is considering two independent projects.The profitability index decision rule indicates that both projects should be accepted.This result most likely does which one of the following?
A)conflicts with the results of the net present value decision rule
B)assumes the firm has sufficient funds to undertake both projects
C)agrees with the decision that would also apply if the projects were mutually exclusive
D)bases the accept/reject decision on the same variables as the average accounting return
E)fails to provide useful information as the firm must reject at least one of the projects

Question

Quizplus · Accepted Answer

The profitability index decision rule assumes that the firm has sufficient funds to undertake all projects that have a profitability index greater than 1. This implies that if both projects are considered acceptable according to this rule, it is assumed the firm has the necessary funds to invest in both.

Roger's Meat Market Is Considering Two Independent Projects