Question

Exercise 12-5 Preference Ranking (LO12-5] Information on four investment proposals is given below: Investment required Present value of cash inflows Net present value Life of the project Investment Proposal А $(150,000) $ ( 80,000) $ (160,000) $ (910,000) 211,800 110,400 241,600 1,214,500 $ 61,800 $ 30,400 $ 81,600 $ 304,500 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 Proposal Project Profitability 9 Index Rank Preference

Answer 1

	Project profitability index	Rank preference
A	(61,800/150,000) = 0.41	2
B	(30,400/80,000) = 0.38	3
C	(81,600/160,000) = 0.51	1
D	(304,500/910,000) = 0.33	4

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