Question
Question: Entrepreneurial Investments Limited needs to select the best project from four different options. The net cash inflows from each investment alternative follow: Year A
Question: Entrepreneurial Investments Limited needs to select the best project from four different options.
The net cash inflows from each investment alternative follow:
| Year | A | B | C | D |
| 1 | $49,303 | 0 | $9,093 | $26,614 |
| 2 | $40,619 | 0 | $20,859 | $26,614 |
| 3 | $29,045 | $45,915 | $29,956 | $26,614 |
| 4 | 0 | $54,565 | $38,236 | $26,614 |
| 5 | 0 | $60,000 | $49,236 | $5,000 |
Each project requires an initial cash investment of: $101,858
Entrepreneurial Investments requires a minimum return on investment of: 11%
Required:
a. Calculate the profitability index for each investment. Which investment is the best
alternative according to the profitability index?
b. Calculate the payback period for each investment. Which investment is the best
alternative according to the payback period?
c. In your opinion, which method is the best for selecting the optimal investment:
the profitability index or the payback period? Why?
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Automotive Audits Principles And Practices
Authors: D. H. Stamatis
1st Edition
0367696592, 978-0367696597
