Selma Inc. is comparing several alternative capital budgeting projects as shown below:ProjectsA B CInitial investment $80,000 $120,000 $160,000Present value of net cash flows 90,000 110,000 200,000Using the profitability index, the projects rank as

The rank will be

1. Project C

2. Project A

3. Project B

Explanation:

The profitability index formula is

(NPV + Initial investment) : Initial Investment

We have to get this index for each project

Project A ($80,000+90,000) : $80,000=2. 125

Project B ($120,000 + 110,000) : $120,00 = 1.916

Project C ($160,000 + 200,000) : $160,000 = 2.25

The higher profitability index is from Project C, then Project A and finally Project B