Question

In: Accounting

Eddie Corporation is considering the following three investment projects (Ignore income taxes.): Project C Project D...

Eddie Corporation is considering the following three investment projects (Ignore income taxes.):

Project C Project D Project E
Investment required $ 64,800 $ 73,800 $ 153,000
Present value of cash inflows $ 71,928 $ 85,608 $ 166,770

Rank the projects according to the profitability index, from most profitable to least profitable.

Multiple Choice

E, C, D

E, D, C

D, C, E

C, E, D

Solutions

Expert Solution

Answer:

(c) D, C, E

Explanation:


                                                                                                                Project C

Project D

Project E

Investment required

$

64,800

$

73,800

$

153,000

Present value of cash inflows

$

71,928

$

85,608

$

166,770

Profitability index

= Present value of cash inflows / Investment required

=$ 71,928/ $ 64,800   

=$85,608 /73,800   

= $166,770 /153,000

Profitability index

= 1.11

= 1.16

= 1.09

Ranks from most profitable to least profitable

2

1

3

ekkarill92 answered 2 years ago
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