The management of Edelmann Corporation is considering the following three investment projects: Rank the projects according to the profitability index,from most profitable to least profitable.

Question

The management of Edelmann Corporation is considering the following three investment projects:  Rank the projects according to the profitability index,from most profitable to least profitable.

Quizplus · Accepted Answer

The profitability index for each project is calculated as follows:
Project T: PV of cash inflows/PV of cash outflows = $1,250,000/$1,000,000 = 1.25
Project R: PV of cash inflows/PV of cash outflows = $1,500,000/$1,200,000 = 1.25
Project S: PV of cash inflows/PV of cash outflows = $1,000,000/$800,000 = 1.25

All three projects have the same profitability index of 1.25, which means that for every $1 invested, the company receives $1.25 in present value of cash inflows. Therefore, the best choice for the company would be to select the project(s) that align with their strategic objectives, risk tolerance, and available resources.

The Management of Edelmann Corporation Is Considering the Following Three