A Profitability Index Can Be Used to Rank Investment Proposals

question 51

Essay

A profitability index can be used to rank investment proposals.
Required:
A. Define the profitability index.
B. Two projects are under consideration. Project I has a net present value of $20,000 whereas project II has a net present value of $200,000. Which project is better? Explain. What weakness in a net-present-value analysis does the profitability index address?

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Definitions:

Minutes

A unit of time equal to sixty seconds or one-sixtieth of an hour.

Hours

A unit of time equal to 60 minutes.

Enrolled

Registered or signed up for a course, program, or institution.

Freshmen

A term typically used in the United States to describe a first-year student in high school or college.