A company seeking investment opportunities has collected the following informati
ID: 2467461 • Letter: A
Question
A company seeking investment opportunities has collected the following information:
Project A
Project B
Project C
Project D
Initial investment
$400,000
$250,000
$150,000
$270,000
PV of cash inflows
$570,000
$295,000
$210,000
$282,000
Payback period (years)
3.6
3.0
4.75
3.5
NPV of project
$170,000
$45,000
$60,000
$12,000
Profitability index
1.43
1.18
1.40
1.04
If the company makes a decision based on the net present value, which project will be selected?
Project A
B. Project B
C. Project C
D. Project D
Project A
Project B
Project C
Project D
Initial investment
$400,000
$250,000
$150,000
$270,000
PV of cash inflows
$570,000
$295,000
$210,000
$282,000
Payback period (years)
3.6
3.0
4.75
3.5
NPV of project
$170,000
$45,000
$60,000
$12,000
Profitability index
1.43
1.18
1.40
1.04
Explanation / Answer
A. Project A has highest NPV.
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