Question
Exercise 13-5 Preference Ranking [LO13-5] Information on four investment proposals is given below: Investment Proposal A...
Exercise 13-5 Preference Ranking [LO13-5]
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 | ||||||||
Required:
1. Compute the project profitability index for each investment proposal. (Round your answers to 2 decimal places.)
2. Rank the proposals in terms of preference.
| Investment Proposal | Project Profitability Index | Rank Preference |
| A | ? | ? |
| B | ? | ? |
| C | ? | ? |
| D | ? | ? |
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Answer #1
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