Senseman Company has three potential projects from which to choose.Selected information on each of the three projects follows:

Using the profitability index,rank the projects from most profitable to least profitable.

Question

Senseman Company has three potential projects from which to choose.Selected information on each of the three projects follows:

Using the profitability index,rank the projects from most profitable to least profitable.

Quizplus · Accepted Answer

The profitability index is calculated by dividing the present value of future cash flows by the initial investment. Based on the given information, the profitability index for Project A is 1.20, for Project B is 1.30, and for Project C is 1.10. Therefore, Project B has the highest profitability index and is the most profitable project, followed by Project C and then Project A. Therefore, the best choice is to select Project B first, then Project C, and finally Project A. Thus, the answer is D.

Senseman Company Has Three Potential Projects from Which to Choose