Question

Information on four investment proposals is given below: Investment required Present value of cash inflows Net present value Life of the project Investment Proposal B C D $(60,000) $(130,000) $(140,000) $(2,100,000) 86,600 181,100 213,900 2,803,200 $ 26,600 $ 51,100 $ 73,900 $ 703,200 5 years 7 years 6 years 6 years Required: 1. Compute the project profitability index for each investment proposal. (Round your answers to 2 decimal places.) 2. Rank the proposals in terms of preference. Investment Profitability Project Proposal Rank Preference Index

Answer 1

solution:- Investment .. Proposal project profitability Index Rank pe preference A O ο . م .444 2. B 0.39 ا ... C . 0.53 ح ο ο : 033 4 م Explanation to profitability Index (PI) ;. present value of cash Inflows.nl Investment . . 10x)" Nel present Value (npu) Investment H i

$267600 $60,000 -1. 10x) 00 1) Proposal ' not - $86,600 -Tamil $267600 160,000 = 0.1ų OLC 14 3) proposal BPI = $181,100 -1 oy $51,10o $ 130,000 $51,100 $130,000 - I zor = 0.39 3) proposals. pl. = $213,900 $160000 ; t, .:-1 oy S s e $73,900 $140,000 . 30.53 W proposal 'D' PI = $2,803, 2004 $2,100,000 loys $703,200 ..$2,100,000 Note: The higher the value more attractiveness of of profitability. Index, the a proposed project is selected
Hi. If you have any doubts relating to the above solution feel free to rise your doubts through comments. Thank You.