Chapter 12, Problem 10Q

To determine

Profitability index:

Profitability index is a technique, which is used to rank the proposals of the business.  It is used by the management when the business has more investment proposals and limited fund. 

The Profitability index is computed as follows:

$\text{Profitability index =}\frac{\text{Total present value of net cash flow}}{\text{Amount to be invested}}$

To discuss: Advantages of profitability index over the direct comparison of net present value.