Capital Gro ). Pletfix C D Not secure l invoker ass nmentSessionLocats Chapter 2

Question

Capital Gro ). Pletfix C D Not secure l invoker ass nmentSessionLocats Chapter 25 PR 25-6A eBeok Capital Rationing Decision for a Service Company Involving Four Proposals Renaissance Ca pital Group is considering allocating a limited amount of capital investment funds among four proposals. The amount of proposeda Income from Operations s 64,000 64,000 Net Cash Flow Proposal A: $690,000 1 $200,000 200,000 200,000 160,000 160,000 64,000 24,000 24,000 $240,000 s 26,000 26,000 s920,000 Proposal B: $320,000 $ 90,000 90,000 6,000 70,000 70,000 20,000 $340,00o 55,000 53,000 50,000 47,000 45,000 250,000 5,000 (44,000) 20,000 33,400 31,400 28.400 25,400 23,400 142,000 $100,000 100,000 90,000 20,000 Proposal C: 108.000 Proposal D 400,000 s 180,000 180,000 160,000 100,000 80,000 signment Score: 90,24% Al work saved O Type here to search DOLL

Explanation / Answer

Your all answers till part 4 is correct, so I am solving part 5 requirement only. Present Value Index of each of the proposals in part (4) Formula for Present Value Index of proposal = (Net Present Value + Initial Investment) / Initial Investment Proposal C Proposal D Net present Value(NPV) 62067 94920 Initial Investment 108000 400000 Total 170067 494920 Divide the above total by Initial Investment 108000 400000 Present Value Index 1.57 1.24 Based on the above results, we will choose Proposal C as it has higher Present Value Index compared to Proposal D

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