Information on four investment proposals is given below Investment Proposal Inve

Question

Information on four investment proposals is given below Investment Proposal Investment required $ (120,000) $(180,000) $ (30,000) $ (1,560,000) 250,000 2,081,000 $ 52,000$ 70,000 $ 18,600 $ 521,000 6 years 48,600 Present value of cash inflows Net present value Life of the project 172,000 5 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 BCAD CABD ABCD DCBA

Explanation / Answer

1. Project profitability index = Net present value / Investment required

Proposal A:

Project profitability index = $52,000 / $120,000 = 0.43

Proposal B:

Project profitability index = $70,000 / $180,000 = 0.39

Proposal C:

Project profitability index = $18,600 / $30,000 = 0.62

Proposal D:

Project profitability index = $521,000 / $1,560,000 = 0.33

2. CABD

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