Shaylee Corp has $2.40 million to invest in new projects. The company\'s manager

Question

Shaylee Corp has $2.40 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: Initial investment Present value of future cash flows Project A Project B Project C Project D $ 670,000 S 350,000 S 910,000 S 1,065,000 885,000 475,000 1400,000 ,560,000 Required 1. Is Shaylee able to invest in all of these projects simultaneously? Yes No 2-a. Calculate the profitability index for each project. (Round your answers to 4 decimal places.) Profitability Index Project A Project B Project C Project D 2-b. What is Shaylee's order of preference based on the profitability index? Rank Project A Project B Project C Project D

Explanation / Answer

1)

Total funds available = $ 2,400,000

Total amount required for investment

= $670,000 + $350,000 + $910,000 + $1,065,000

= $ 2,995,000

So, the organization is not able to invest in all of these projects simultaneously as the investment amount required is more than the amount available

2-a)

Profitability index

= Present value of future cash flows / Initial investment

The following table shows the calculations

2-b)

Order of preference will be from highest to lowest based on profitability index which is shown in the following table

Calculations Particulars Project A Project B Project C Project D A Initial Investment    670,000    350,000       910,000    1,065,000 B Present value of future cash flows    885,000    475,000    1,400,000    1,560,000 C = B / A Profitability Index 1.3209 1.3571 1.5385 1.4648

Related Questions

Navigate

• Browse (All)
• Browse S
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.