Problem

Comparing Projects Using Profitability IndexDayton Corp has $2 million to invest in new pr...

Comparing Projects Using Profitability Index

Dayton Corp has $2 million to invest in new projects. The company’s managers have presented a number of possible options that the board must prioritize. Information about the projects follows:

 

Project A

Project B

Project C

Project D

Initial investment

$550,000

$230,000

$ 790,000

$ 945,000

Present value of

 

 

 

 

future cash flows

765,000

415,000

1,200,000

1,560,000

Required:

1.Is Dayton able to invest in all of these projects simultaneously? Explain.


2.Calculate the profitability index for each project and prioritize them for Dayton.

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