Question

The management of Winstead Corporation is considering the following three investment projects (Ignore income taxes.):

	Project 1			Project 2				Project 3
Investment required	$	82,400			$	125,900			$	235,500
Discounted value of cash inflows	$	90,064			$	145,084			$	258,175

The only cash outflows are the initial investments in the projects.

Required:

Rank the investment projects using the project profitability index.

Rank 1	project _____________
Rank 2	project _____________
Rank 3	project _____________

Answer 1

P.I is Discounted cash flows divided by initial investment,

Rank 1 is Project 2, Rank 2 is Project 3 and Rank 3 is project 1.