Shaylee Corp has $2.30 million to invest in new projects. The company’s managers

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 project as follows: Initial investment PV future cash flows Project A $650,000 865,000 Project B. $ 330,000 465,000 Project C. $ 890,000 1,300,000 Project D. $ 1,045,000 1,660,000

Required: 1A) Calculate the profitability index for each project.
1b) what is shaylees order of preference based on the profitability index? 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 project as follows: Initial investment PV future cash flows Project A $650,000 865,000 Project B. $ 330,000 465,000 Project C. $ 890,000 1,300,000 Project D. $ 1,045,000 1,660,000

Required: 1A) Calculate the profitability index for each project.
1b) what is shaylees order of preference based on the profitability index? Initial investment PV future cash flows Project A $650,000 865,000 Project B. $ 330,000 465,000 Project C. $ 890,000 1,300,000 Project D. $ 1,045,000 1,660,000

Required: 1A) Calculate the profitability index for each project.
1b) what is shaylees order of preference based on the profitability index?

Explanation / Answer

profitability index= PV future cash flows/initial investment

1.A.

NOTE:Project having highest PI must be ranked first and so on.

profitability index A(865000/650000) 1.33(APPROX) B(465000/330000) 1.41(APPROX) C(1,300,000/890,000) 1.46(APPROX) D(1,660,000/1045000) 1.59(APPROX).

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