Under conditions of limited resources, when a company is comparing several investments with the different amounts for their initial outlay, the decision should be made on the basis of which of the following?

Question

Quizplus · Accepted Answer

The most appropriate method for comparing different investments with varying initial outlays is by using the profitability index, which measures the present value of future cash flows relative to the initial investment. This method considers the time value of money, and provides a more accurate picture of the return on investment compared to other methods such as total cash flows or payback period. Therefore, the project with the highest profitability index should be chosen.

Under Conditions of Limited Resources, When a Company Is Comparing