E11-8 Comparing Projects Using Profitability Index [LO 11-6] Shaylee Corp has $2

Question

E11-8 Comparing Projects Using Profitability Index [LO 11-6] Shaylee Corp has $2.25 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 A Project B Project C Project D S 600,000 $ 280,000 $ 840,000 S 995,000 815,000 440,000 1,250,000 1,610,000 Required 1. Is Shaylee able to invest in all of these projects simultaneously? No Yes 2-a. Calculate the profitability 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 2 Profitability index Project A 1.3583 =815000/600000 Project B 1.5714 =440000/280000 Project C 2.0833 =1250000/600000 Project D 1.6181 =1610000/995000 2b Rank Project A 4 Project B 3 Project C 1 Project D 2

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