Investment required Present value of cash inflows Net present value Life of the project Investment Profitability Index Proposal A B C D $(790, 000) 1, 121, 300 $ 331, 300 Rank Preference 5 years $(120,000) 168, 300 $48,300 7 years $ (120,000) 182,000 $ 62,000 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. 6 years $ (1,820, 000) 2,427,200 $ 607,200 6 years
Investment required Present value of cash inflows Net present value Life of the project Investment Profitability Index Proposal A B C D $(790, 000) 1, 121, 300 $ 331, 300 Rank Preference 5 years $(120,000) 168, 300 $48,300 7 years $ (120,000) 182,000 $ 62,000 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. 6 years $ (1,820, 000) 2,427,200 $ 607,200 6 years
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Transcribed Image Text:Investment required
Present value of cash inflows
Net present value
Life of the project
Investment Profitability
Index
Proposal
A
B
C
D
A
$ (790,000)
1, 121, 300
$331,300
Rank
Preference
5 years
Investment Proposal
C
$ (120,000)
182,000
$ 62,000
B
$ (120,000)
168,300
$ 48,300
7 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.
6 years
D
$ (1,820, 000)
2,427,200
$ 607, 200
6 years
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