________ is the recommended method for determining the optimal capital budget under conditions of capital rationing.
A) The net present value (NPV) method
B) Monte Carlo simulation
C) The modified internal rate of return (MIRR) method
D) The profitability index (PI) method
E) The discounted payback method

Question

Quizplus · Accepted Answer

The profitability index (PI) method is the recommended method for determining the optimal capital budget under conditions of capital rationing. This method calculates the ratio of the present value of cash inflows to the initial investment, which indicates the profitability of each project. The projects with the highest PI should be given priority in a capital budget under conditions of limited funds.

________ Is the Recommended Method for Determining the Optimal Capital