The senior management of Netherworld Ltd is evaluating four project proposals and will select one project to invest in. The following summary information is available: Project Code Initial Investment Required Net Present Value Project life (years) A 172,000 48,000 7 B 155,000 48,000 12 C 115,000 39,100 7 D 141,000 38,500 3 Required: Calculate the profitability index for each project. In order of preference, rank the four projects in terms of net present value and the profitability index. Which project do you think should be chosen?
Dividend Policy
A dividend is a part of the profit paid to the shareholder in an organization. The management of the organization has the right to decide the policy for giving a dividend from the earnings to the shareholder. However, an organization is not in the obligation to declare a dividend for the investor. Dividend policy differs from organization to organization. As the management has the only authority to decide dividend rate, dividend amount, and time of dividend payout by considering all other elements that create an impact on the payment of a dividend.
Stocks And Dividends
Stock or equities are generally sold and bought in the Stock Exchange or which is popularly known as the stock market. Stocks are issued in the Stock Exchange for the sole purpose of raising funds for the Corporation or the company itself. Now since an individual has purchased a portion of the Corporation or company, he or she may claim to be a part of the earnings or profit of the company.
The senior management of Netherworld Ltd is evaluating four project proposals and will select one project to invest in. The following summary information is available:
|
Project Code |
Initial Investment Required |
|
Project life (years) |
|
A |
172,000 |
48,000 |
7 |
|
B |
155,000 |
48,000 |
12 |
|
C |
115,000 |
39,100 |
7 |
|
D |
141,000 |
38,500 |
3 |
Required:
- Calculate the profitability index for each project.
- In order of preference, rank the four projects in terms of net present value and the profitability index.
- Which project do you think should be chosen?
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