Profitability index is useful under:
A) Capital rationing
B) Mutually exclusive projects
C) Non-normal projects
D) None of the above

Question

Quizplus · Accepted Answer

Profitability index is most useful under capital rationing, which is a situation where a company has limited funds available for investment in projects. The profitability index helps the company to rank projects in order of their profitability per dollar of investment, which can help to maximize the return on investment for the available funds. It is less useful for mutually exclusive projects, where only one project can be chosen, or for non-normal projects, which have unpredictable cash flows.

Profitability Index Is Useful Under