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Homework answers / question archive / Max Jones is a  property investor and he has been advised by his bank that he has $25,000 to invest in new  projects

Max Jones is a  property investor and he has been advised by his bank that he has $25,000 to invest in new  projects

Finance

Max Jones is a  property investor and he has been advised by his bank that he has $25,000 to invest in new  projects. He has  provided  you with the following  information:  
Year      Project A         Project B         Project C        Project D

0         $(20,000.00)    $(16,000.00)    $(9,000.00)     $ (9,000.00)

1         $3,000.00         $3,000.00        $6,000.00        $ 8,000.00

2         $8,000.00         $6,000.00         $4,000.00       $ 7,000.00

3         $7,500.00         $13,000.00       $7,000.00        $ 1,000.00

4          $7,000.00        $14,000.00       $4,000.00        $ 3,000.00

5          $8,000.00        $12,000.00       $4,750.00        $ 5,250.00
The discount rate is 15% Which combination of  projects should they invest in based on  profitability index ?

a) A Only

b) B Only

c) C Only

d) D Only

e) A & B

f) A & C

g) A & D

h) B & C

 i) B & D

 j) C &D 
 

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PI for project A = 1.08

PI for project B = 1.85

PI for project C = 1.94

PI for project D = 1.91

Hence the correct option is C). Project C only because it has highest PI.