Chapter 11, Problem 12ME

To determine

Concept introduction:

Profitability Index:

It is similar to the NPV method to evaluate a project. It calculates the ratio between the present value cash inflow and present value of cash outflow. A project should be accepted if it has a profitability index greater than or equal to 1. The formula to calculate the Profitability Index is as follows:

$Profitabilityindex=\frac{Presentvaluecashinflow}{Presentvalueofcashoutflow}$

To indicate:

The Priority ranking of the projects on the basis of profitability index.