(Ignore income taxes in this problem.) The management of Pattee Corporation is considering three investment projects-M, N, and O. Project M would require an investment of $25,000, Project N of $67,000, and Project O of $70,000. The present value of the cash inflows would be $28,750 for Project M, $73,700 for Project N, and $79,100 for Project O.
-Rank the projects according to the profitability index,from most profitable to least profitable.

Question

Quizplus · Accepted Answer

The profitability index is the ratio of the present value of cash inflows to the initial investment. Based on the given ranking, project M has the highest profitability index, followed by O and then N. Therefore, choosing project M and O would result in the highest return on investment. The order of the projects in option C (M,O,N) matches the given ranking of the profitability indices, making it the best choice in terms of profitability.

(Ignore Income Taxes in This Problem