A profitability index can be used to rank investment proposals.
Required:
A. Define the profitability index.
B. Two projects are under consideration. Project I has a net present value of $20,000 whereas project II has a net present value of $200,000. Which project is better? Explain. What weakness in a net-present-value analysis does the profitability index address?

Question

Quizplus · Accepted Answer

The Answer of A profitability index can be used to rank investment proposals.
Required:
A. Define the profitability index.
B. Two projects are under consideration. Project I has a net present value of $20,000 whereas project II has a net present value of $200,000. Which project is better? Explain. What weakness in a net-present-value analysis does the profitability index address?

A Profitability Index Can Be Used to Rank Investment Proposals