Question

Shaylee Corp has $2.25 million to invest in new projects. The
company’s managers have presented a number of possible options that
the board must prioritize. Information about the projects
follows:

Project A | Project B | Project C | Project D | |||||

Initial investment | $ | 590,000 | $ | 270,000 | $ | 830,000 | $ | 985,000 |

Present value of future cash flows | 805,000 | 435,000 | 1,240,000 | 1,600,000 | ||||

**Required:
1.** Is Shaylee able to invest in all of these projects
simultaneously?

No | |

Yes |

**2-a.** Calculate the profitability index for each
project. **(Round your answers to 4 decimal
places.)**

**2-b.** What is Shaylee's order of preference based
on the profitability index?

Answer #1

Req 1. | ||||||||

Total Investment requird for all Projects: | ||||||||

Project A | 590000 | |||||||

Project B | 270000 | |||||||

Project C | 830000 | |||||||

Project D | 985000 | |||||||

Total Investment required | 2675000 | |||||||

Total investment required is $ 2.675 mllion and investment in hand is $ 2.25 million, hence the company cannot invest in all projects. | ||||||||

Req 2: | ||||||||

A | B | C | D | |||||

Present value of Cash flows | 805000 | 435000 | 1240000 | 1600000 | ||||

Divide: Initial Investment | 590000 | 270000 | 830000 | 985000 | ||||

Profitability Index | 1.36 | 1.61 | 1.49 | 1.62 | ||||

(Present value of inflows/ Initial Investment) | ||||||||

Req 2-b: | ||||||||

Preference order | Project | |||||||

First | Project D | |||||||

Second | Project B | |||||||

Third | Project C | |||||||

Fourth | Project A |

Shaylee Corp has $2.00 million to invest in new projects. The
company’s managers have presented a number of possible options that
the board must prioritize. Information about the projects
follows:
Project A
Project B
Project C
Project D
Initial investment
$
428,000
$
243,000
$
733,000
$
958,000
Present value of future cash flows
778,000
428,000
1,213,000
1,573,000
Required:
1. Is Shaylee able to invest in all of these
projects simultaneously?
2-A. Calculate the profitability index for each
project....

Shaylee Corp has $2.00 million to invest in new projects. The
company’s managers have presented a number of possible options that
the board must prioritize. Information about the projects
follows:
Project A
Project B
Project C
Project D
Initial investment
$
431,000
$
246,000
$
736,000
$
961,000
Present value of future cash flows
781,000
431,000
1,216,000
1,576,000
Required:
1. Is Shaylee able to invest in all of these
projects simultaneously?
2-A. Calculate the profitability index for each
project....

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