Final answer:
Projects are ranked relative to each other based on the value of their profitability index. The higher the profitability index, the more favorable the project is considered, and projects with higher profitability indexes are ranked higher than those with lower profitability indexes.
Step-by-step explanation:
When using the profitability index (PI), projects are ranked relative to each other based on the value of their profitability index.
The profitability index is calculated by dividing the present value of the future cash flows from a project by the initial investment required for that project.
The higher the profitability index, the more favorable the project is considered, and projects with higher profitability indexes are ranked higher than those with lower profitability indexes.