ACCA FM · Chapter 8 · Question 10 of 10
Capital is expected to be limited in more than one future period. Which technique is most appropriate for selecting projects to maximise NPV?
Test yourself: pick an answer
Reveal answer & explanation
Correct answer: D) Linear programming
Explanation
Ranking by profitability index works only when capital is limited in a single period. When there are constraints in several periods, each project uses a different amount of the scarce resource in each period, so a mathematical programming approach such as linear programming is needed. EAC is used for replacement decisions.
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