Question

. While Taking the Help of Capital Budgeting for Accepting or Rejecting Mutually Exclusive Projects Decisions
Which of the Method i.e. Either Net Present Value (NPV) Or Profitability Index (PI.) Method should be given
Priority and Why? Explain with an Example?​

Answer 1

Answer:

Corporations are typically required, or at least recommended, to undertake those projects that will increase profitability and thus enhance shareholders' wealth.

However, the rate of return deemed acceptable or unacceptable is influenced by other factors specific to the company as well as the project.

For example, a social or charitable project is often not approved based on the rate of return, but more on the desire of a business to foster goodwill and contribute back to its community.

Answer 2

Explanation:

Among the two options given, the preferred option to select or drop investment projects by corporation is to look at the Profitability Index value. In most organizations, the key purpose of doing investment to get some return out of that, which would be in the form of better sales, production capacity leading to better profits in the future. A business generally does not invest where there is no monetary profit