Exercise 14-5 (Algo) Preference Ranking [LO14-5]Information on four investment proposals is given below:Investment requiredPresent value of cash inflowsNet present valueLife of the projectRequired:Investment ProfitabilityProposalIndexABCDA$ (60,000)88,600$ 28,6001. Compute the profitability index for each investment proposal.Note: Round your answers to 2 decimal places.2. Rank the proposals in terms of preference.RankPreference5 yearsInvestment ProposalC$ (110,000)168,600$ 58,600B$ (190,000)260,600$ 70,6007 years6 yearsD$(2,660,000)3,551,000$ 891,0006 years

Profitability Index: The profitability index, sometimes known as the PI, is a metric that may be used to evaluate the allure of a certain project or investment. The PI may be computed by dividing the initial investment amount in the project by the present value of the cash flows that are projected to be generated in the project in the future.ParticularsABCDProfitability Index1.481.371.531.33Pvof cash inflows/Initial Investment88600/60000260600/190000168600/1100003551000/2660000Ranking2314Project C - Rank 1Project A - Rank 2Project B - Rank 3Project D - Rank 4

Business

Accounting

Exercise 14-5 (Algo) Preference Ranking [LO14-5] Information on four investment proposals is given below: Investment required Present value of cash inflows Investment Profitability Proposal Index Net present value Life of the project Required: 1. Compute the profitability index for each investment proposal. Note: Round your answers to 2 decimal places. 2. Rank the proposals in terms of preference. A B C D A $ (60,000) 88,600 $ 28,600 Rank Preference 5 years Investment Proposal C $ (110,000) 168,600 $ 58,600 B $ (190,000) 260,600 $ 70,600 7 years 6 years D $ (2,660,000) 3,551,000 $ 891,000 6 years

Exercise 14-5 (Algo) Preference Ranking [LO14-5] Information on four investment proposals is given below: Investment required Present value of cash inflows Investment Profitability Proposal Index Net present value Life of the project Required: 1. Compute the profitability index for each investment proposal. Note: Round your answers to 2 decimal places. 2. Rank the proposals in terms of preference. A B C D A $ (60,000) 88,600 $ 28,600 Rank Preference 5 years Investment Proposal C $ (110,000) 168,600 $ 58,600 B $ (190,000) 260,600 $ 70,600 7 years 6 years D $ (2,660,000) 3,551,000 $ 891,000 6 years

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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