Ryner Corporation is considering three investment projects: S, T, and U. Project S would require an investment of $20,000, Project T of $69,000, and Project U of $83,000. No other cash outflows would be involved. The present value of the cash inflows would be $23,200 for Project S, $77,970 for Project T, and $94,620 for Project U. Rank the projects according to the profitability index, from most profitable to least profitable. (Ignore income taxes.)

Question

Quizplus · Accepted Answer

The profitability index (PI) is calculated by dividing the present value of cash inflows by the initial investment. For Project S: $23,200 / $20,000 = 1.16. For Project T: $77,970 / $69,000 = 1.13. For Project U: $94,620 / $83,000 = 1.14. Thus, the ranking from most profitable to least profitable is S (1.16), U (1.14), T (1.13).

Ryner Corporation Is Considering Three Investment Projects: S, T, and U