QUESTION $33$

Define each of the following investment rules and discuss any potential shortcomings of each: Profitability Index

other performance criteria as well. A project with Profitability Index $=$$$2,500$ implies that the total shareholder wealth of the firm will increase by $$2,500$ if the project is accepted.

The profitability index is biased toward short$-$term projects; it fully ignores any cash flows that occur after the cutoff point.

QUESTION $34$

Define each of the following investment rules and discuss any potential shortcomings of each: Net Present Value

the total shareholder wealth of the firm will increase by $$2,500$ if the project is accepted.

projects and is subject to capital rationing, IRR may provide a good ranking measure of the projects, indicating the "bang for the buck" of each particular project.

flows that occur after the cutoff point.