Information on four investment proposals is given below: Investment Proposal A B C D Investment required $ (390,000) $ (30,000) $ (40,000) $ (600,000) Present value of cash inflows 551,000 41,000 64,100 800,000 Net present value $ 161,000 $ 11,000 $ 24,100 $ 200,000 Life of the project 5 years 7 years 6 years 6 years Required: 1. Compute the profitability index for each investment proposal. (Round your answers to 2 decimal places.) 2. Rank the proposals in terms of preference.
Information on four investment proposals is given below: Investment Proposal A B C D Investment required $ (390,000) $ (30,000) $ (40,000) $ (600,000) Present value of cash inflows 551,000 41,000 64,100 800,000 Net present value $ 161,000 $ 11,000 $ 24,100 $ 200,000 Life of the project 5 years 7 years 6 years 6 years Required: 1. Compute the profitability index for each investment proposal. (Round your answers to 2 decimal places.) 2. Rank the proposals in terms of preference.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
Related questions
Question
Exercise 14-5 (Algo) Preference Ranking [LO14-5]
Information on four investment proposals is given below:
| Investment Proposal | ||||||||
|---|---|---|---|---|---|---|---|---|
| A | B | C | D | |||||
| Investment required | $ (390,000) | $ (30,000) | $ (40,000) | $ (600,000) | ||||
| Present value of |
551,000 | 41,000 | 64,100 | 800,000 | ||||
| $ 161,000 | $ 11,000 | $ 24,100 | $ 200,000 | |||||
| Life of the project | 5 | years | 7 | years | 6 | years | 6 | years |
Required:
1. Compute the profitability index for each investment proposal. (Round your answers to 2 decimal places.)
2. Rank the proposals in terms of preference.
Expert Solution
This question has been solved!
Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.
This is a popular solution!
Trending now
This is a popular solution!
Step by step
Solved in 2 steps
Knowledge Booster
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, accounting and related others by exploring similar questions and additional content below.Recommended textbooks for you
Accounting
Accounting
ISBN:
9781337272094
Author:
WARREN, Carl S., Reeve, James M., Duchac, Jonathan E.
Publisher:
Cengage Learning,
Accounting Information Systems
Accounting
ISBN:
9781337619202
Author:
Hall, James A.
Publisher:
Cengage Learning,
Accounting
Accounting
ISBN:
9781337272094
Author:
WARREN, Carl S., Reeve, James M., Duchac, Jonathan E.
Publisher:
Cengage Learning,
Accounting Information Systems
Accounting
ISBN:
9781337619202
Author:
Hall, James A.
Publisher:
Cengage Learning,
Horngren's Cost Accounting: A Managerial Emphasis…
Accounting
ISBN:
9780134475585
Author:
Srikant M. Datar, Madhav V. Rajan
Publisher:
PEARSON
Intermediate Accounting
Accounting
ISBN:
9781259722660
Author:
J. David Spiceland, Mark W. Nelson, Wayne M Thomas
Publisher:
McGraw-Hill Education
Financial and Managerial Accounting
Accounting
ISBN:
9781259726705
Author:
John J Wild, Ken W. Shaw, Barbara Chiappetta Fundamental Accounting Principles
Publisher:
McGraw-Hill Education