The management of Winstead Corporation is considering the following three investment projects (Ignore income taxes.): Project QProject RProject SInvestment required$14,000 $48,000 $74,000 Present value of cash inflows$14,140 $54,720 $82,140 The only cash outflows are the initial investments in the projects.Required:Rank the investment projects using the project profitability index.
What will be an ideal response?
| Project Q | Project R | Project S | |||||||
| Investment required (a) | $ | (14,000 | ) | $ | (48,000 | ) | $ | (74,000 | ) |
| Present value of cash inflows | 14,140 | 54,720 | 82,140 | ||||||
| Net present value (b) | $ | 140 | $ | 6,720 | $ | 8,140 | |||
| Project profitability index (b) ÷ (a) | 0.01 | 0.14 | 0.11 | ||||||
| Ranked by project profitability index | 3 | 1 | 2 | ||||||
Business
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