Information on four investment proposals is given below: Investment Proposal Inv

Question

Information on four investment proposals is given below: Investment Proposal Investment required $ (150,000) (200,000) $(180,000 $ (2,600,000) 275,600 274,100 211,500 Present value of cash inflows Net present value Life of the project 3,470,500 $ 61,500 $75,600 $94,100 870,500 years years 6 years years Required 1. Compute the project profitability index for each investment proposal. (Round your answers to 2 decimal places.) Project Investment Profitability Proposal Index 2. Rank the proposals in terms of preference D CBA O ABCD O BCAD O CAB

Explanation / Answer

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

Proposal A:

Project profitability index = $61,500 / $150,000 = 0.41

Proposal B:

Project profitability index = $75,600 / $200,000 = 0.38

Proposal C:

Project profitability index = $94,100 / $180,000 = 0.52

Proposal D:

Project profitability index = $870,500 / $2,600,000 = 0.33

2. CABD

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