Pad 2:48 PM *79% -+ Information on four investment proposals is given below: Inv
ID: 2555460 • Letter: P
Question
Pad 2:48 PM *79% -+ Information on four investment proposals is given below: Investment required Present value of cash inflows Net present value Life of the project $ (790,000) 120,000) 120,000) 182,000 48.300 S62.000 6 years (1,820,000) 2,427,200 607,200 6 years 168,300 5 years years Required 1. Compute the project profitability index for each investment proposal. (Round your answers to 2 decimal places.) ProposalIndex 1.41 1.40 1.52 1.33 2. Rank the proposals in terms of preference. CABD BCAD O DCBA ABCDExplanation / Answer
Profitability Index
= Present Value of Future Cash Flows / Initial Investment Required
PI of A = $11,21,300/$790,000=1.42
PI of B=
$168300/$120000=1.40
PI of C=$182000/$120000=1.52
PI of D=
$2427200/$1820000=1.33
Ranking of proposals in terms of preference is
1-C
2-A
3-B
4-D
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