Information on four investment proposals is given below: Investment Proposal Investment required Present value of c…
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Question “Information on four investment proposals is given below: Investment Proposal Investment required Present value of c…”
Answer
Investment proposal | Index of project profitability | Preference for rank |
A | 1.40 | 2 |
B | 1.38 | 3 |
C | 1.53 | 1 |
D | 1.33 | 4 |
Profitability index = Present Value of Cash Inflows/Investment Required
Profitability index, Proposal B = Present Value of Cash Inflows/Investment Required
= 589,700/420,000
= 1.40
Profitability index, Proposal A = Present Value of Cash Inflows/Investment Required
= 276,400/200,000
= 1.38
Proposal C: Present value of cash inflows/Investment required, Profitability Index
= 259,700/170,000
= 1.53
Profitability index, ProposalD = Present Value of Cash Inflows/Investment Required
= 3,203,000/2,400,000
= 1.33
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