Information on four investment proposals is given below: Investment Proposal A B C D Investment required $ (390,000) $ (30,000) $ (40,000) $ (600,000) Present value of cash inflows 551,000 41,000 64,100 800,000 Net present value $ 161,000 $ 11,000 $ 24,100 $ 200,000 Life of the project 5 years 7 years 6 years 6 years Required: 1. Compute the profitability index for each investment proposal. (Round your answers to 2 decimal places.) 2. Rank the proposals in terms of preference.
Information on four investment proposals is given below: Investment Proposal A B C D Investment required $ (390,000) $ (30,000) $ (40,000) $ (600,000) Present value of cash inflows 551,000 41,000 64,100 800,000 Net present value $ 161,000 $ 11,000 $ 24,100 $ 200,000 Life of the project 5 years 7 years 6 years 6 years Required: 1. Compute the profitability index for each investment proposal. (Round your answers to 2 decimal places.) 2. Rank the proposals in terms of preference.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Exercise 14-5 (Algo) Preference Ranking [LO14-5]
Information on four investment proposals is given below:
| Investment Proposal | ||||||||
|---|---|---|---|---|---|---|---|---|
| A | B | C | D | |||||
| Investment required | $ (390,000) | $ (30,000) | $ (40,000) | $ (600,000) | ||||
| Present value of cash inflows | 551,000 | 41,000 | 64,100 | 800,000 | ||||
| $ 161,000 | $ 11,000 | $ 24,100 | $ 200,000 | |||||
| Life of the project | 5 | years | 7 | years | 6 | years | 6 | years |
Required:
1. Compute the profitability index for each investment proposal. (Round your answers to 2 decimal places.)
2. Rank the proposals in terms of preference.
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