Problem - Information on four investment proposals is given below:
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|
Investment Proposal
|
|
|
A
|
B
|
C
|
D
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|
Investment required
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$(330,000)
|
$(40,000)
|
$(190,000)
|
$(2,380,000)
|
|
Present value of cash inflows
|
480,000
|
56,500
|
286,700
|
3,178,500
|
|
Net present value
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$150,000
|
$16,500
|
$96,700
|
798,500
|
|
Life of the project
|
5 years
|
7 years
|
6 years
|
6 years
|
Required:
1. Compute the project profitability index for each investment proposal.
2. Rank the proposals in terms of preference.