Vess Inc.is considering the following two projects:
$\begin{array}{rr}
&\text { Project \#1 } & \text { Project \#2 } \
\hline \text { Initial investment }&\$ 20000 & \$ 60000 \
\text { PV of cash inflows }&26000 &66000
\end{array}$

Which of the following statements is true when comparing each of these projects?

Question

Vess Inc.is considering the following two projects:
$\begin{array}{rr}
&\text { Project \#1 } & \text { Project \#2 } \
\hline \text { Initial investment }&\$ 20000 & \$ 60000 \
\text { PV of cash inflows }&26000 &66000
\end{array}$

Which of the following statements is true when comparing each of these projects?

Quizplus · Accepted Answer

The profitability index (PI) is calculated as the present value of future cash inflows divided by the initial investment. For Project #1, PI = $26,000 / $20,000 = 1.3. For Project #2, PI = $66,000 / $60,000 = 1.1. Therefore, Project #1 has a higher profitability index.

Vess IncIs Considering the Following Two Projects Which of the Following Statements Is True When Comparing Each