![Exercise 7-5 (Algo) Preference Ranking [LO7-5] Information on four investment proposals is given below: Investment Proposal D](http://img.homeworklib.com/questions/9e401700-6f63-11ea-8987-1ff884bf1469.png?x-oss-process=image/resize,w_560)
Homework Answers
1.
Profitability index of proposal A = Present value of cash inflows/ Investment required
Profitability index of Proposal A = 551,000/390,000
= 1.41
Profitability index of proposal B = Present value of cash inflows/ Investment required
Profitability index of Proposal B = 41,000/30,000
=1.37
Profitability index of proposal C = Present value of cash inflows/ Investment required
Profitability index of Proposal C = 64,100/40,000
= 1.60
Profitability index of proposal D = Present value of cash inflows/ Investment required
Profitability index of Proposal D = 800,000/600,000
= 1.33
2.
| Investment Proposal | Project Profitability Index | Rank Preference |
| A | 1.41 | 2 |
| B | 1.37 | 3 |
| C | 1.60 | 1 |
| D | 1.33 | 4 |
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