Profitability Index: Profitability Index 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 a follows: P r o f i t a b i l i t y i n d e x = P r e s e n t v a l u e c a s h i n f l o w P r e s e n t v a l u e o f c a s h o u t f l o w To indicate: The Priority ranking of the projects on the basis of profitability index.

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Chapter 11, Problem 8ME

To determine

Concept introduction:

Profitability Index:

Profitability Index 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 a follows:

Profitability index=Present value cash inflowPresent value of cash outflow

To indicate:

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

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