Problem: Preference Ranking
Information on four investment proposals is given below: Investment Proposal A B C D Investment required $ (60,000) $ (70,000) $ (40,000) $ (990,000) Present value of cash inflows 88,000 97,300 64,200 1,318,700 Net present value $ 28,000 $ 27,300 $ 24,200 $ 328,700 Life of the project 5 years 7 years 6 years 6 years
Task
• Compute the profitability index for each investment proposal.
• Rank the proposals in terms of preference.