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St. Michaels School ranks investments by using the profitability index (PI). The following data relate to Project X and Project Y: Project X Project Y
St. Michaels School ranks investments by using the profitability index (PI). The following data relate to Project X and Project Y:
Project X | Project Y | ||||||
Initial Investment | $ | 400,000 | $ | 1,300,000 | |||
Present value of inflows | 600,000 | 1,800,000 | |||||
Which project would be more attractive as judged by its ranking, and why?
a.)Project X because the PI is 1.50.
b.)Project Y because the PI is 1.38.
c.)Project X because the PI is 0.67.
d.)Project Y because the PI is 0.72.
e.)Both projects would be equally attractive in terms of ranking, as indicated by a positive PI.
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