Exercise 11-3 Preference Ranking [L011-3] Information on four investment proposa

Question

Exercise 11-3 Preference Ranking [L011-3] Information on four investment proposals is given below: Investment Proposal Investment required (360,000) (50,000) $(140,000) 67,600 214,300 (840,000) Present value of cash inflows Net present value Life of the project 506,900 1,121,400 281,400 6 years $ 146,900 17,600 $ 74,300 years f yearsb years Required 1. Compute the project profitability index for each investment proposal. (Round your answers to 2 decimal places.) Investment Profitability Project Proposal Index 2. Rank the proposals in terms of preference CABD O DCBA OABCD O BCAD

Explanation / Answer

Answer to 1 and 2

Answer to 2 is

C A B D

Particulars A B C D Investment (A)      360,000.00           50,000.00        140,000.00        840,000.00 Present Value of Cash Inflows (B)      506,900.00           67,600.00        214,300.00    1,121,400.00 Profitability Index (B/A)                   1.41                      1.35                     1.53                     1.34 Rank II III I IV

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