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 A В D $(130,000) $( 140,000) $(150,000) $(1,260,000) 185,600 193,800 228,600 1,681, 100 $ 55,600 $ 53,800 $ 78,600 $ 421,100 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 Index Rank Preference А.

Answer 1

Project profitability index = Net present value /investment required

	Project profitability index	Rank
A	(55,600/130,000) = 0.43	2
B	(53,800/140,000) = 0.38	3
C	(78,600/150,000) = 0.52	1
D	(421,100/1,260,000) = 0.33	4

Note that I have rounded some numbers. Comment if you face any issues