Preference Ranking [LO4]

Information on four investment proposals is given below:

Investment Proposal A B C D Investment required . . . . . . . . . . . . . . $(85,000) $(200,000) $(90,000) $(170,000)

Present value of cash infl ows . . . . . . . 119,000 250,000 135,000 221,000 Net present value . . . . . . . . . . . . . . . . $ 34,000 $ 50,000 $ 45,000 $ 51,000 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 t he pr oposals i n t erms of pr eference.