Shaylee Corp has S2.40 millon to invest in new projects. The company\'s managers

Question

Shaylee Corp has S2.40 millon 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 Projeat C Project D S 670,000 350,000 S 910,000 1,065,000 885,000 475,000 ,400,000 1,560,000 Present value of future cash lows Required: 1. Is Shaylee able to invest in all of these projects simultaneously? O 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

Shaylee is not able to invest in all projects simultaneously, since the total amount required for investing in all the projects is (670,000 +350,000 + 910,000 + 1065000 =>$2,995,000 =>2.995 million), but we are having only $2.4 million.

2a.Profitability index =>present value of future cash flows / initial investment

2-b.

order of preference based on profitability index...(higher the index better the ranking).

Profitability index Project A ($885,000 / 670,000) 1.3209 Project B (475,000 / 350,000) 1.3571 Project C (1,400,000 / 910,000) 1.5385 project D ((1,560,000 / 1,065,000) 1.46479

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