QUESTION 4

Preference Ranking

Information on four investment proposals is given below:

Investment Proposal

ABCD

Investment required$(85,000)$(200,000)$(90,000)$(170,000)

Present value of cash flows 119,000250,000 135,000221,000

Net present value $34,000$50,000 $45,000$51,000

Life of the project5 years7 years6 years6 years

Required:

1.Compute the project profitability index for each investment proposal.

2.Rank the proposals in terms of preference.