Blanding Company is considering several investment proposals, as shown below: Using the project profitability index, the ranking would be:

Question

Blanding Company is considering several investment proposals, as shown below:  Using the project profitability index, the ranking would be:

Quizplus · Accepted Answer

The project profitability index (PPI) is calculated by dividing the present value of future cash flows by the initial investment. Based on the table provided, the PPI for each project is as follows:

A: 2.5 / 2 = 1.25
B: 3.3 / 3 = 1.1
C: 1.1 / 1 = 1.1
D: 3.6 / 3 = 1.2

Therefore, the ranking according to PPI is: D > C = B > A

Based on this ranking, the best choice(s) would be to invest in projects D, C, or possibly B. Project A has the lowest PPI and should be avoided if there is a budget constraint.

Blanding Company Is Considering Several Investment Proposals, as Shown Below