24. Ryner Corporation is considering three investment projects: S, T, and U. Project S would require an investment of $20,000, Project T of $69,000, and Project U of $83,000. No other cash outflows would be involved. The present value of the cash inflows would be $23,200 for Project S, $77,970 for Project T, and $94,620 for Project U. Rank the projects according to the profitability index, from most profitable to least profitable. (Ignore income taxes.)
A) U, T, S
B) T, S, U
C) U, S, T
D) S, U, T
Solution:
| Project Profitability Index | |||
| Particulars | Project S | Project T | Project U |
| Initial investment | $20,000.00 | $69,000.00 | $83,000.00 |
| Present value of cash inflows | $23,200.00 | $77,970.00 | $94,620.00 |
| NPV | $3,200.00 | $8,970.00 | $11,620.00 |
| Project Profitability Index (NPV / Investment Required) | 0.16 | 0.13 | 0.14 |
| Rank | 1 | 3 | 2 |
Hence option D is correct.
24. Ryner Corporation is considering three investment projects: S, T, and U. Project S would require...