Information on four investment proposals is given below: Required: 1. Compute th

Question

Information on four investment proposals is given below:

Required:

1. Compute the project profitability index for each investment proposal. (Round your answers to 2 decimal places.)

2. Rank the proposals in terms of preference.

Investment Proposal A B C D Investment required $ (300,000 ) $ (140,000 ) $ (100,000 ) $ (1,500,000 ) Present value of cash inflows 424,800 191,700 151,100 2,001,700 Net present value $ 124,800 $ 51,700 $ 51,100 $ 501,700 Life of the project 5 years 7 years 6 years 6 years

Explanation / Answer

Profitability Index = PV of future cash flows / Initial Investment

A = 424800 / 300000 = 1.42

B = 191700 / 140000 = 1.37

C = 151100 / 100000 = 1.51

D = 2001700 / 1500000 = 1.33

Rank

C

A

B

D

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