The profitability index in capital budgeting is used for __________?
Correct answer: C. evaluate projects
- A. negative projects
- B. relative projects
- C. evaluate projects
- D. earned projects
Explanation
The profitability index evaluates the value created per unit of investment and is particularly useful for comparing or ranking projects under capital rationing. Among the choices, evaluating projects is the best fit.
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About Business Finance
Business finance explains how organisations plan, obtain and use money while balancing risk, return and liquidity. Topics include financial statements, time value of money, budgeting, working capital, capital structure, sources of finance, investment appraisal and cost of capital. Capital budgeting evaluates long-term projects, whereas working capital manages day-to-day operations.
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