Shaylee Corp has $2.30 million to invest in new projects. The company\'s manager

Question

Shaylee Corp has $2.30 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 AProject B Project C Project D $ 660,000340,000 $ 900,0001,055,000 875,000 470,000 1,350,000 1,610,000 Required 1. Is Shaylee able to invest in all of these projects simultaneously? No Yes 2-a. Calculate the profitablity 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. NO

Reason : The total amount available with Shaylee is $2,300,000

The total amount required by Shaylee to invest in all the 4 projects is $2,955,000 (660,000+340,000+900,000+1,055,000)

As the total amount required by Shaylee is more than that available. Hense Shaylee could not invest in all the four projects simultaneously.

2-a Profitability index = PV of future cash flows / Initial Investment

2-b.

The project with highest Profitability ratio will be ranked first.

Project Profitability Index Project A 875,000/660,000 = 1.3258 Project B 470,000/340,000 = 1.3823 Project C 1,350,000/900,000 = 1.5 Project D 1,610,000/1,055,000 = 1.5261

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