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 Project A Project B Project C Project D $ 670,000 S 350,000 $ 910,000 $ 1,065,000 Initial investment Present value of future cash flows 885,000 475,000 1,400,000 1,560,000 Required: 1. Is Shaylee able to invest in all of these projects simultaneously? Yes O No 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
Since the insufficient fund arises,he cannot invest in all project simultaneously.

2.
Profitability Index
= Present Value of Future Cash Flows / Initial Investment Required

PI of A =$885000/$670000=1.33

PI of B =$475000/350000=1.36

PI of C=$1400000/910000=1.54

PI of D=$1560000/1065000=1.46

3. Order of preference
Rank 1- C
Rank 2- D
Rank 3- B
Rank 4- A

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