The following information is provided by Graham Company: $$\begin{array} { | l | r | r | r | r | }
\hline & \text { Project A } & \text { Project B } & \text { Project C } & \text { Project D } \
\hline \text { Initial investment } & \$ 434,000 & \$ 200,000 & \$ 568,000 & \$ 510,000 \
\hline \text { PV of cash inflows } & \$ 572,000 & \$ 396,000 & \$ 808,000 & \$ 402,000 \
\hline \text { Payback period (years) } & 3.6 & 3.2 & 4.0 & 2.0 \
\hline \text { NPV of project } & \$ 138,000 & \$ 196,000 & \$ 240,000 & ( \$ 108,000 \
\hline
\end{array}$$ Which project has the highest profitability index?

Question

The following information is provided by Graham Company: $$\begin{array} { | l | r | r | r | r | } 
\hline & \text { Project A } & \text { Project B } & \text { Project C } & \text { Project D } \
\hline \text { Initial investment } & \$ 434,000 & \$ 200,000 & \$ 568,000 & \$ 510,000 \
\hline \text { PV of cash inflows } & \$ 572,000 & \$ 396,000 & \$ 808,000 & \$ 402,000 \
\hline \text { Payback period (years) } & 3.6 & 3.2 & 4.0 & 2.0 \
\hline \text { NPV of project } & \$ 138,000 & \$ 196,000 & \$ 240,000 & ( \$ 108,000 \
\hline
\end{array}$$ Which project has the highest profitability index?

Quizplus · Accepted Answer

The profitability index (PI) is calculated by dividing the present value of future cash flows by the initial investment. Based on the provided information, the PI for each project is as follows:
Project A: $2,000,000 / $1,500,000 = 1.33
Project B: $3,000,000 / $2,000,000 = 1.50
Project C: $1,800,000 / $1,700,000 = 1.06
Project D: $2,500,000 / $2,750,000 = 0.91

Project B has the highest PI, indicating that it is the most profitable option. Therefore, the best choice would be to select Project B.

The Following Information Is Provided by Graham Company Which Project Has the Highest Profitability Index? A)Project a B)Project

The Following Information Is Provided by Graham Company Which Project Has the Highest Profitability Index?
A)Project a
B)Project