The following information is provided by Pemberton? Systems:
|
Project A |
Project B |
Project C |
Project D |
|
|
Initial investment |
$ 428 comma 000$428,000 |
$ 212 comma 000$212,000 |
$ 570 comma 000$570,000 |
$ 514 comma 000$514,000 |
|
PV of cash inflows |
$ 580 comma 000$580,000 |
$ 394 comma 000$394,000 |
$ 802 comma 000$802,000 |
$ 406 comma 000$406,000 |
|
Payback period? (years) |
3.6 |
3.2 |
4.0 |
2.0 |
|
NPV of project |
$ 152 comma 000$152,000 |
$ 182 comma 000$182,000 |
$ 232 comma 000$232,000 |
$ 108 comma 000$108,000 |
Which project has the highest profitability? index?
A.
Project A
B.
Project B
C.
Project C
D.
Project D
B.
Project B
Working:
| Profitability Index | = | Present Value of Cash inflows/Initial Investment | |||||
| So, | |||||||
| Project A | Project B | Project C | Project D | ||||
| Present Value of Cash inflows | $ 5,80,000 | $ 3,94,000 | $ 8,02,000 | $ 4,06,000 | |||
| Initial Investment | $ 4,28,000 | $ 2,12,000 | $ 5,70,000 | $ 5,14,000 | |||
| Profitability Index | 1.36 | 1.86 | 1.41 | 0.79 | |||
| Thus, Project B has highest Profitability Index. | |||||||
Get Answers For Free
Most questions answered within 1 hours.