Information on four investment proposals is given below Investment required $ (9
ID: 2580453 • Letter: I
Question
Information on four investment proposals is given below Investment required $ (90,000) (100,000) (70,000) (120,000) Present value of cash inflows Net present value Life of the project 138,000 105,000 $ 36,000 38,000 $ 35,000 6 years 126,000 160,000 40,000 6 years 5 years 7 years Required: 1. Compute the project profitability index for each investment proposal. (Round your answers to 2 decimal places.) Investment Profitability Proposal Index 2. Rank the proposals in terms of preference O DCBA ABCD OBCAD OCABDExplanation / Answer
Profitability Index = Present value cash inflows / Present value cash outflows
= $126000 / $90000
= 1.4 times
= $138000 / $100000
= 1.38 times
= $105000 / $70000
= 1.50 times
= $160000 / $120000
= 1.33 times
Rank II III I IV
Formula A B C D Profitability Index= $126000 / $90000
= 1.4 times
= $138000 / $100000
= 1.38 times
= $105000 / $70000
= 1.50 times
= $160000 / $120000
= 1.33 times