Question

Exercise 13-5 Preference Ranking [LO13-5]

Information on four investment proposals is given below:

		Investment Proposal
	A			B			C			D
Investment required	$	(130,000	)	$	(140,000	)	$	(150,000	)	$	(1,260,000	)
Present value of cash inflows		185,600			193,800			228,600			1,681,100
Net present value	$	55,600		$	53,800		$	78,600		$	421,100
Life of the project		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.

Answer 1

1 answer A В с net present value investment required profitability index-net present value / investment required 55600 53800 78600 421100 140000 150000 1260000 130000 0.38 0.43 0.52 0.33 profitability 2) ranking index rank 0.43 2 В 0.38 C 0.52 1 0.33 4 note the project with higher profitability index will given 1st rank