A. The PI calculation is used to determine the ratio of the PV of net future cash flows (both inflows and outflows) to the amount of the initial investment. It is calculated as follows, using the same

information from the NPV calculation: PV of future net cash flows ÷ Net Initial Investment.  If a project has a positive net present value, the profitability index will be above 1.00 and it will be an acceptable project. The profitability index is used to evaluate all possible capital projects of different dollar amounts and then rank them according to their desirability.

B. There are three discounted cash flow methods used for capital budgeting. Only one of them can be used to evaluate all possible capital projects of different dollar amounts and rank them according to their desirability.

C. The net present value method is not used to evaluate all possible capital projects of different dollar amounts and then rank them according to their desirability.

D. The Payback Method is used to determine the number of periods that must pass before the net after-tax cash inflows from the investment will equal (or "pay back") the initial investment cost. It is not used to evaluate all possible capital projects of different dollar amounts and then rank them according to their desirability.