Exercise-5 (Present value index – ranking investment projects)
The management of National company is considering three competing investments – investment P, investment Q and investment R. The information about the requirement of initial amount of investment, present value of net cash inflow and net present value of all three investments is given below:
Required:
Choose the most desirable proposal using present value index (profitability index).
Solution:
As each investment requires a different initial investment, the proposals would be ranked using present value index (also called profitability index).
Present value index = Present value of cash inflows/Initial investment
Proposal P: $36,000/$35,000 = 1.03
Proposal Q: $21,000/$20,000 = 1.05
Proposal R: $12,000/$11,000 = 1.09
Proposal R is the most desirable proposal because it has the highest present value index.
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2 Comments on Exercise-5 (Present value index – ranking investment projects)
Need help in calculating this quiz.
angola company has six projects available for investment as follows.
project initial cost sh’m’ Npv@ 15% cost of cap.
1 60 21
2 15 9
3 20 9
4 55 15
5 30 20
6 40 -2
the firm has sh.100m available for investment. identify which project should be undertaken. using PI and NPV.
PvP factor 20% Korma hoga
31300 initial outlay h or invest amount 100000 h reply fast mera ‘kl paper h
annual cash flow 6000 h