Use the following information for questions
Selma Inc. is comparing several alternative capital budgeting projects as shown below:
.. $\begin{array}{lrrr}&&\text { Projects }\
&A&B&C\
\text { Initial investment } & \$ 80,000 & \$ 120,000 & \$ 160,000 \
\text { Present value of net cash flows } & 90,000 & 110,000 & 200,000
\end{array}$
-Using the profitability index, the projects rank as
A) A , C , B .
B) A, B, C .
C) C , A , B.
D) C, B , A.

Question

Use the following information for questions 
Selma Inc. is comparing several alternative capital budgeting projects as shown below:
.. $\begin{array}{lrrr}&&\text { Projects }\
&A&B&C\
\text { Initial investment } & \$ 80,000 & \$ 120,000 & \$ 160,000 \
\text { Present value of net cash flows } & 90,000 & 110,000 & 200,000
\end{array}$
-Using the profitability index, the projects rank as
A)   A , C , B .
B) A, B, C .
C) C , A , B.
D) C, B , A.

Quizplus · Accepted Answer

The profitability index (PI) is calculated as the present value of net cash flows divided by the initial investment. For each project: A: 90,000 / 80,000 = 1.125, B: 110,000 / 120,000 = 0.917, C: 200,000 / 160,000 = 1.25. Thus, the ranking by PI is C (1.25), A (1.125), B (0.917).

Use the Following Information for Questions Selma Inc -Using the Profitability Index, the Projects Rank as A)

Use the Following Information for Questions
Selma Inc -Using the Profitability Index, the Projects Rank as
A)