Exercise 12-5 (Algo) Preference Ranking [LO12-5]

Information on four investment proposals is given below:

	Investment Proposal
	A		B		C		D
Investment required	$ (270,000)		$ (90,000)		$ (100,000)		$ (2,800,000)
Present value of cash inflows	393,500		127,100		151,300		3,738,500
Net present value	$ 123,500		$ 37,100		$ 51,300		$ 938,500
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.

\begin{tabular}{|c|c|c|} \hline Investment Proposal & Profitability Index & Rank Preference \\ \hline A & & \\ \hline B & & \\ \hline C & & \\ \hline D & & \\ \hline \end{tabular}