Using the profitability index, which of the following projects should be accepted?
$$\begin{array} { l l l }
\text { Praject } M : & \text { NPV } = \$ 60,000 & \text { NINV } = \$ 200,000 \
\text { Praject } N : & N P V = \$ 10,000 & \text { NINV } = \$ 30,000 \
\text { Praject } 0 : & N P V = \$ 2,000 & \text { NINV } = \$ 5,000
\end{array}$$
A) Project M NPV = $2,000 NINV = $5,000
B) Project N
C) Project O
D) All projects should be accepted

Question

Using the profitability index, which of the following projects should be accepted?
$$\begin{array} { l l l } 
\text { Praject } M : & \text { NPV } = \$ 60,000 & \text { NINV } = \$ 200,000 \
\text { Praject } N : & N P V = \$ 10,000 & \text { NINV } = \$ 30,000 \
\text { Praject } 0 : & N P V = \$ 2,000 & \text { NINV } = \$ 5,000
\end{array}$$
A) Project M NPV = $2,000 NINV = $5,000
B) Project N
C) Project O
D) All projects should be accepted

Quizplus · Accepted Answer

The profitability index is calculated by dividing the NPV by the NINV. The higher the profitability index, the more profitable the project. In this case, Project M has the highest profitability index, followed by Project N and then Project O. Therefore, all projects should be accepted.

Using the Profitability Index, Which of the Following Projects Should