Bowen Corporation is considering several investment proposals, as shown below: If the project profitability index is used, the ranking of the projects from most to least profitable would be:
A)D, C, A, B
B)D, B, A, C
C)B, A, C, D
D)D, A, B, C

Question

Bowen Corporation is considering several investment proposals, as shown below:  If the project profitability index is used, the ranking of the projects from most to least profitable would be:
A)D, C, A, B 
B)D, B, A, C 
C)B, A, C, D 
D)D, A, B, C

Quizplus · Accepted Answer

To calculate the project profitability index, divide the present value of cash inflows by the initial investment. The ranking of projects from most to least profitable based on the project profitability index is:

D: (870,000/600,000) = 1.45
C: (310,000/240,000) = 1.29
A: (700,000/600,000) = 1.17
B: (200,000/240,000) = 0.83

Therefore, project D is the most profitable, followed by C, A, and B. So, the best choice is option A.

Bowen Corporation Is Considering Several Investment Proposals, as Shown Below