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    Question

    In capital budgeting, the profitability index method is

    also known as: 
    A Accounting rate of return method Correct Answer Incorrect Answer
    B Discounted payback period method Correct Answer Incorrect Answer
    C Internal rate of return method Correct Answer Incorrect Answer
    D Benefit-cost ratio method Correct Answer Incorrect Answer
    E None of the above. Correct Answer Incorrect Answer

    Solution

    The profitability index (PI) method is a capital budgeting technique that measures the relationship between the present value of future cash flows and the initial investment required for a project. It is calculated as the ratio of the present value of cash inflows to the present value of cash outflows. The PI method is also known as the benefit-cost ratio method because it measures the benefits of the project in relation to its costs.

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