EBK ACCOUNTING PRINCIPLES
13th Edition
ISBN: 9781119411017
Author: Weygandt
Publisher: WILEY
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Chapter 27, Problem 10Q
To determine
Profitability Index:
The Profitability Index formula determines the profitability percentage of a proposed investment. It helps the management in comparing the profit percentages of available proposals and selecting the potential investment project with a higher profitability index.
: The benefit of profitability index in comparison to
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What is a true indicator of the project's profitability?
Define the term Profitability Index? How can we consider the profitability index of a project?
Which of the following is an advantage of Net present value?
a.
Investment potential ignored
b.
Useful in evaluating mutually exclusive projects
c.
Considers time value of money
d.
Easy to calculate
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- What is the criteria to accept a project based on the net present value and the internal rate of return?arrow_forwardwhat is accounting rate of return for project B ?arrow_forwardWhy are NPV, BCR, and IRR considered SUPERIOR indicators of Project Feasibility compared to Payback or Recoupment Period and Accounting Rates of Return? Explain briefly.arrow_forward
- How does the size of the initial investment affect the internal rate of return on the net present value models?arrow_forwardwhy net present value is considered to be superior to internal rate of return as an investment appraisal method? Critically evaluate and give an example if possiblearrow_forward(A) compute the profitability index for each project. (B) based on the profitability index, which project should the company select?arrow_forward
- Which of the following methods does not consider the investment’s profitability? ARR Payback NPV IRRarrow_forwardHow to calculate the Profitability index?arrow_forwardHow can we use the internal rate of return to evaluate whether we should pursue a specific project? Should we pursue a project when the cost of capital is higher than the internal rate of return?arrow_forward
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