Question
1. The project profitability index for each proposal is: Project Present Value of Cash Inflows (a) Investment Required (b) Project Profitability Index (a) (b) A
1. The project profitability index for each proposal is:
| Project | Present Value of Cash Inflows (a) | Investment Required (b) | Project Profitability Index (a) (b) |
| A | $535,000 | $350,000 | 1.53 |
| B | $590,000 | $390,000 | 1.51 |
| C | $670,000 | $450,000 | 1.49 |
| D | $730,000 | $480,000 | 1.52 |
2. The ranking would be:
| Project | Project Profitability Index |
| A | 1.53 |
| D | 1.52 |
| B | 1.51 |
| C | 1.49 |
Note that project A has the lowest net present value of the four projects, but it is ranked first in terms of the project profitability index.
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Intermediate Financial Management
Authors: Eugene F. Brigham, Phillip R. Daves
7th Edition
0030333288, 9780030333286
