Reference no: EM131933007

1. Which of the following statements is true regarding the profitability index?

a. if the project NPV is negative, the profitability index is negative

b. if project A has NPV greater than project B NPV, then project A also has profitability index higher than project B

c. if the profitability index is greater than 1, the internal rate of return is greater than the project required return

d. if the profitability index is positive, the net present value is positive

e. none of the above

2. Which of the following is a relevant cash flow for capital budgeting analysis?

a. the firm spent $100,000 on a marketing study to determine demand estimates for a new product

b. the project will require debt to be raised, which will increase interest expense by $15,000 per year

c. the project will require stock to be issued, which will increase dividend payments by $50,000 per year

d. the firm bought land 3 years ago for $1.25 million

e. none of the above