In order to rank the proposed projects using the profitability index (PI), the latter should calculated by using the provided information on net investment and NPV of each project. Please find below the already ranked list of projects according to their PI.
Ranked list of projects by profitability index
Thus, such projects as Project J, Project F, Project A, Project H and Project B requiring $1,175,000 of net investments should be accepted taking into account the limit of funds available for investment in the amount of $1,200,000.
As a result of such investments, the remainder of $25,000 funds will earn the cost of capital of 14%.
As the amount of NPV is used to determine the profitability index, there Continue reading...