ch. 11 Warm-up Exercis O | ezto.mheducation.com/hm.tpx Information on four inves

Question

ch. 11 Warm-up Exercis O | ezto.mheducation.com/hm.tpx Information on four investment proposals is given below Investment Proposal Investment required Present value of cash inflows (420,000) (200,000) (170,000) (2.400,000) 276,400 259,700 3.203,000 3 169,700 76.400 89,700 803,000 6 years6 years 589,700 Net present value Life of the project 5 years 7 years Required 1. Compute the project profitability index for each investment proposal. (Round your answers to i2 decimal places.) Project Investment Profitability Proposal Index 2 Rank the proposals in terms of preference O DCBA O CABD OABCD O BCAD Hints References eBook & Resources

Explanation / Answer

1.

Investment proposal

A

B

C

D

PV future cash inflow

$    589,700

$ 276,400

$       259,700

$    3,203,000

÷Initial Investment

$    420,000

$ 200,000

$       170,000

$    2,400,000

Profitability index

1.40

1.38

1.53

1.33

2.

Investment proposal

A

B

C

D

Rank

2

3

1

4

Option 2nd “CABD” is correct answer.

Investment proposal

A

B

C

D

PV future cash inflow

$    589,700

$ 276,400

$       259,700

$    3,203,000

÷Initial Investment

$    420,000

$ 200,000

$       170,000

$    2,400,000

Profitability index

1.40

1.38

1.53

1.33

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