Question - Information on four investment proposals is given below.
Investment Proposal
A B C D
Investment required $(900,000) $(170,000) $(90,000) $(1,430,000)
Present value of cash inflows 1,263,600 233,400 136,500 1,908,300
Net present value $ 363,600 $63,400 $46,500 $478,300
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.