Shaylee Corp has $2.25 million to invest in new projects. The company's managers have presented a number of possible options that the board must prioritize. Information about the projects follows:Project C600,000 $ 280,000 $ 840,000 $ 995,0001,250,000Project BProject DProject AInitial investment440,000Present value of future cash flows815,0001,610,000Required:1. Is Shaylee able to invest in all of these projects simultaneously?NoYes2-a. Calculate the profitability index for each project. (Round your answers to 4 decimal places.)Profitability IndexProject AProject BProject CProject D2-b. What is Shaylee's order of preference based on the profitability index?RankProject AProject BProject CProject D

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Asked Nov 26, 2019
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Shaylee Corp has $2.25 million to invest in new projects. The company's managers have presented a number of possible options that the board must prioritize. Information about the projects follows:
Project C
600,000 $ 280,000 $ 840,000 $ 995,000
1,250,000
Project B
Project D
Project A
Initial investment
440,000
Present value of future cash flows
815,000
1,610,000
Required:
1. Is Shaylee able to invest in all of these projects simultaneously?
No
Yes
2-a. Calculate the profitability index for each project. (Round your answers to 4 decimal places.)
Profitability Index
Project A
Project B
Project C
Project D
2-b. What is Shaylee's order of preference based on the profitability index?
Rank
Project A
Project B
Project C
Project D
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Shaylee Corp has $2.25 million to invest in new projects. The company's managers have presented a number of possible options that the board must prioritize. Information about the projects follows: Project C 600,000 $ 280,000 $ 840,000 $ 995,000 1,250,000 Project B Project D Project A Initial investment 440,000 Present value of future cash flows 815,000 1,610,000 Required: 1. Is Shaylee able to invest in all of these projects simultaneously? No Yes 2-a. Calculate the profitability index for each project. (Round your answers to 4 decimal places.) Profitability Index Project A Project B Project C Project D 2-b. What is Shaylee's order of preference based on the profitability index? Rank Project A Project B Project C Project D

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Expert Answer

Step 1

Profitability Index – This ratio represents the relation between cost and the benefits of the investment. It helps in ranking projects based on their profitability. It is calculated as

Profitability Index PV of future cash Flows Initial Investment
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Profitability Index PV of future cash Flows Initial Investment

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Step 2

Computatio...

Computation of Profitability Index
Total
Particulars
Initial Investment- (a)
A
В
С
995000 2715000
600000
280000
840000
PV of future cash flows
1250000
(b)
Profitability Index b/a
815000
440000
1610000
1.358333 1571429 1.488095 1.6180905
Rank
IV
II
III
I
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Computation of Profitability Index Total Particulars Initial Investment- (a) A В С 995000 2715000 600000 280000 840000 PV of future cash flows 1250000 (b) Profitability Index b/a 815000 440000 1610000 1.358333 1571429 1.488095 1.6180905 Rank IV II III I

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