You are tasked with assessing the performance of the following projects and to rank the projects using the profitability index.

Project 1

The opportunity cost of capital is 8%. The initial cost of the project is $500,000 and generates the following cash flows: $228,000 in year 1, $178,000 in year 2, $249,000 in year 3, and -$12,000 in year 4.

Project 2

The opportunity cost of capital is 9%. The initial cost of the project is $480,000 and generates the following cash flows: $200,000 in year 1, $150,000 in year 2, $190,000 in year 3, and $80,000 in year 4.

Project 3

The opportunity cost of capital is 7%. The initial cost of the project is $570,000 and generates the following cash flows: $150,000 in year 1, $180,000 in year 2, $120,000 in year 3, and $200,000 in year 4.

Ranking the projects by profitability index from highest to lowest, the rank order of the projects is:

Select one:

a. 1, 2, 3

b. 2, 3, 1

c. 3, 1, 2

d. 2, 1, 3

e. 1, 3, 2