You are analyzing a project and have gathered the following data: Based on the profitability index of _____ for this project, you should _____ the project.
A)0.93; accept
B)1.02; accept
C)1.07; accept
D)0.93; reject
E)1.07; reject

Question

You are analyzing a project and have gathered the following data:  Based on the profitability index of _____ for this project, you should _____ the project.
A)0.93; accept 
B)1.02; accept 
C)1.07; accept 
D)0.93; reject 
E)1.07; reject

Quizplus · Accepted Answer

Without knowing the exact calculations behind the profitability index, we can determine the best choice by comparing the index to 1. A profitability index greater than 1 indicates the project should be accepted, while a profitability index less than 1 indicates the project should be rejected.

Option A has a profitability index of 0.93, meaning the project should be rejected. Option B has a profitability index of 1.02, which is only slightly above 1 and may not be enough to justify accepting the project. Option D also has a profitability index of 0.93, so the project should be rejected.

Option C has a profitability index of 1.07, which is greater than 1 and therefore indicates the project should be accepted. Therefore, the best choice is C.

You Are Analyzing a Project and Have Gathered the Following