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Crowley Corporation is considering three investment projects: F, G, and H. Project F would require an investment of $21000, Project G of $49,000, and Project H of $82,000. No other cash outflows would be involved. The present value of the cash inflows would be $21,210 for Project F.$57820 for Project G, and $95,120 for Project H. Rank the projects according to the profitability index, from most profitable to least profitable. G, H, F H, F, G H, G, F F, H, G
Expert Answer
Profitability Index = Present Value of Cash Inflows / Present Value of Cash Outflows
Project F:
Profitability Index = $ 21,210 / $ 21,000
= 1.01
Project G:
Profitability Index = 57,820/ 49,000
= 1.18
Project H:
Profitability Index = 95,120 / 82,000
= 1.16
Hence, Ranking done on basis of most profitable to least profitable (i.e. Highest Profitability Index to Lowest Profitability Index)
G , H ,F is the correct answer
