Question

Selma Inc. is comparing several alternative capital budgeting projects as shown below:

Projects A B C

Initial investment $80,000 $120,000 $160,000

Present value of net cash flows 90,000 110,000 200,000

Using the profitability index, the projects rank as

A) A, C, B.

B) A, B, C.

C) C, A, B.

D) C, B, A.

Answer 1

Correct Answer:

Option: c: C,A,B

Working:

Projects
	A	B	C
Present value of net cash flow	$        90,000	$        110,000	$        200,000
Initial investment	$        80,000	$        120,000	$        160,000
Profitability index	1.13	0.92	1.25
Ranking	2	3	1

Project in order or Ranking: C, A, B

End of Answer.

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