Analysis using the profitability index:
A) Frequently conflicts with the accept and reject decisions generated by the application of the net present value rule.
B) Is useful as a decision tool when investment funds are limited.
C) Is useful when trying to determine which one of two mutually exclusive projects should be accepted.
D) Utilizes the same basic variables as those used in the average accounting return.
E) Produces results which typically are difficult to comprehend or apply.

Question

Quizplus · Accepted Answer

The profitability index is useful as a decision tool when investment funds are limited because it helps prioritize projects based on their relative profitability per unit of investment, allowing for efficient allocation of limited resources.

Analysis Using the Profitability Index