University of Central Florida (UCF) FIN3403 Business Finance Practice Exam 3

The correct answer pertains to evaluation methods primarily used for assessing investment projects. Net present value (NPV), profitability index (PI), and internal rate of return (IRR) are widely recognized techniques utilized in finance to determine the viability and profitability of projects.

NPV calculates the difference between the present value of cash inflows and outflows, helping to identify whether a project will generate value over time. Profitability index provides a ratio of the present value of future cash flows to the initial investment, assisting in comparing the attractiveness of different projects. Internal rate of return is the discount rate that makes the NPV of all cash flows equal to zero, essentially indicating the project's expected annual return.

On the other hand, the debt-equity ratio is a financial metric used to assess a company's leverage and financial structure rather than evaluate the specific profitability of individual projects. It reflects how much debt a company is using to finance its assets compared to shareholder equity. This makes it unrelated to project evaluation, distinguishing it from the other options mentioned.