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A company seeking investment opportunities has collected the following informati

ID: 2467461 • Letter: A

Question

A company seeking investment opportunities has collected the following information:

Project A

Project B

Project C

Project D

Initial investment

$400,000

$250,000

$150,000

$270,000

PV of cash inflows

$570,000

$295,000

$210,000

$282,000

Payback period (years)

3.6

3.0

4.75

3.5

NPV of project

$170,000

$45,000

$60,000

$12,000

Profitability index

1.43

1.18

1.40

1.04

If the company makes a decision based on the net present value, which project will be selected?

Project A

B. Project B

C. Project C

D. Project D

Project A

Project B

Project C

Project D

Initial investment

$400,000

$250,000

$150,000

$270,000

PV of cash inflows

$570,000

$295,000

$210,000

$282,000

Payback period (years)

3.6

3.0

4.75

3.5

NPV of project

$170,000

$45,000

$60,000

$12,000

Profitability index

1.43

1.18

1.40

1.04

Explanation / Answer

A. Project A has highest NPV.

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