Answer (D) is correct . The profitability index (PI) is often used to decide among investment alternatives when more than one is acceptable. The profitability index is the ratio of the present value of future net cash inflows to the initial net cash investment. The PI, although a variation of the net present value method, facilitates comparison of different-sized investments.
Answer (A) is incorrect because The accounting rate of return is a poor technique. It ignores the time value of money.
Answer (B) is incorrect because The payback method ignores the time value of money and long-term profitability.
Answer (C) is incorrect because The internal rate of return is not effective when alternative investments have different lives.
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