Information on four investment proposals is given below:
Rank the proposals in terms of preference according to the project profitability index:

Question

Information on four investment proposals is given below: 
Rank the proposals in terms of preference according to the project profitability index:

Quizplus · Accepted Answer

The project profitability index (PPI) formula is: PPI = Present value of cash inflows / Initial investment.

For proposal 1: 
PPI = 140,000 / 100,000 = 1.4

For proposal 2: 
PPI = 85,000 / 120,000 = 0.71

For proposal 3: 
PPI = 150,000 / 110,000 = 1.36

For proposal 4: 
PPI = 120,000 / 130,000 = 0.92

Proposal 1 has the highest PPI, followed by proposal 3, then proposal 2, and finally proposal 4. Therefore, the best choice is option C, which ranks the proposals as 1, 3, 2, and 4.

Information on Four Investment Proposals Is Given Below