- CFA Exams
- CFA Exam: Level I 2021
- Study Session 10. Corporate Finance (1)
- Reading 32. Capital Budgeting
- Subject 3. Investment Decision Criteria

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**CFA Practice Question**

Choose one of the following to best quantify, in dollar terms, how stockholder wealth will be affected by undertaking a project under consideration.

B. Net present value

C. Payback analysis

D. The profitability index

E. The internal rate of return

A. The average accounting return

B. Net present value

C. Payback analysis

D. The profitability index

E. The internal rate of return

Correct Answer: B

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**User Contributed Comments**
5

User |
Comment |
---|---|

DonAnd |
Huh? I thought it was D-the profitability index?? |

poomie83 |
PI is only used NPV is determined. The decision to undertake a project is at the NPV level - positive NPV indicates cash inflows which influences share price thereby affecting stockholder wealth |

thekobe |
dollar terms is the key |

davcer |
Only npv is in dollar terms |

ascruggs92 |
PI is the PV of 1 dollar invested in said project. It's useful but required NPV to be calculated, making NPV more useful. |