Question
Walters Corporation has limited funds available for investment and must ration the funds among five competing projects. Selected information on the five projects follows: Project
Walters Corporation has limited funds available for investment and must ration the funds among five competing projects. Selected information on the five projects follows:
| Project | Investment Required | Net Present Value | Life of the Project (years) |
| A................. | $168,400 | $47,152 | 6 |
| B................. | $122,500 | $39,200 | 14 |
| C................. | $86,000 | $29,240 | 9 |
| D................. | $100,000 | $37,000 | 2 |
| E.................. | $134,000 | $(9,380) | 7 |
The net present values above have been computed using a 10% discount rate. The company wants your assistance in determining which project to accept first, second, and so forth.
Required:
1. Compute the profitability index for each project.
2. In order of preference, rank the five projects in terms of:
a. Net present value.
b. Project profitability index.
3. Which ranking do you prefer? Why?
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