iPad * 99% ezto.mheducation.com Question 2 (of 5) Save &Exit; Submit value: 4.00
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iPad * 99% ezto.mheducation.com Question 2 (of 5) Save &Exit; Submit value: 4.00 points Information on four investment proposals is given below: Investment Proposal $ (60,000) (130,000) $ (140,000) (2,100,000) 2,803,200 Investment required 86,600 S 26,600 5 years Net present value $ 51,100 S 73,900 703,200 Life of the project 7 years 6 years 6 years Required 1. Compute the project profitability index for each investment proposal. (Round your answers to 2 Pro Profitabilit Investment Proposal ndex 2. Rank the proposals in terms of preference BCAD ODCBA CABD s eBook&Resources; Hint#1Explanation / Answer
Answer:-1)- Profitability index is an investment appraisal technique calculated by dividing the present value of future cash flows of a project by the initial investment required for the project.
Profitability index=Present value of future cash flows/Initial Investment required
Explanation :-Proposal D has the highest net present value but it ranks 4th in terms pf project profitablity index.
2)- Rank the proposals in terms of preferences:-CABD
Calulation of Project Profitablity Index Particulars Investment Proposal A B C D Net Present Value $ (A) 26600 51100 73900 703200 Investment required $ (B) 60000 130000 140000 2100000 Profitablity Index C=A/B 0.44 0.39 0.53 0.33 Ranking 2 3 1 4Related Questions
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