Information on four investment proposals is given below Investment Proposal Inve

Question

Information on four investment proposals is given below Investment Proposal Investment required $ (60,000) $ (70,000) S (40,000) S (990,000) 88,000 97,300 64,200 Present value of cash inflows Net present value Life of the project 1,318,700 $ 28,000 $27,300 $ 24,200 $ 328,700 6 years years 7 years 6 years Required 1. Compute the project profitability index for each investment proposal. (Round your answers to 2 decimal places.) Investment Profitability Project Proposal Index 2. Rank the proposals in terms of preference DCBA OABCD

Explanation / Answer

Profitability index = PV of cash flow / initial investment

A= 88000/60000

= 1.467

B = 97300/70000

= 1.39

C= 64200/40000

= 1.605

D = 1318700/990000

=1.33

2.

Rank CABD

Option B is correct.

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