Question

Kartman Corporation is evaluating four different real estate investments. Management plans to buy the properties today and sell them three years from today. The annual discount rate for these investments is 16%. The following table summarizes the initial cost and the sale price in three years for each​ property:

	Cost Today		Sale Price in Year 3
Parkside Acres	$540,000		$1,040,000
Real Property Estates	810,000		1,410,000
Lost Lake Properties	530,000		930,000
Overlook	40,000		240,000

Kartman has a total capital budget of $580,000 to invest in properties. Which properties should it​ choose?

The profitability index for Parkside Acres is ____ . ​(Round to two decimal​ places.)

Answer 1

*Present value of sale price = Sale price after 3 years / (1 + Interest)^Years

The profitability index for Parkside Acres is 1.23. ​(Round to two decimal​ places.)

The profitability index for Real Property Estates is 1.12. ​(Round to two decimal​ places.)

The profitability index for Lost lake properties is 1.12. ​(Round to two decimal​ places.)

The profitability index for Overlook is 3.84. ​(Round to two decimal​ places.)

* The company should invest into the property whose Profitability index is higher Thus the company should choose Overlook and Parkside acres