Question
The firm is planning to invest up to 65 million next year. The information about the available investment projects is given in the table below.
The firm is planning to invest up to 65 million next year. The information about the available investment projects is given in the table below.
Project | Initial investment, millions of | Internal rate of return | Net present value, millions of | Profitability index |
A | 50 | 15% | 12 |
|
B | 35 | 19% | 15 |
|
C | 30 | 28% | 42 |
|
D | 25 | 26% | 1 |
|
E | 15 | 20% | 10 |
|
F | 10 | 37% | 11 |
|
G | 10 | 25% | 13 |
|
H | 1 | 18% | 0.1 |
|
Assuming the projects are not divisible, use the profitability index(PI) as a criterion to determine the value-maximizing combination of projects. Show the calculations of the profitability indexes in the final column of the table.
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