What does the profitability index calculated in Example5.1 suggest about the relative profitability of the projects? What
Question:
What does the profitability index calculated in Example5.1 suggest about the relative profitability of the projects? What would be the NPV of the £12 million invested, assuming the profitability index approach is used?
Data from Example5.1
Unicorn Engineering Ltd is considering three possible investment projects: X, Y and Z. The expected pattern of cash flows for each project is as follows:
The business has a cost of capital of 12 per cent and the investment budget for the year that has just begun is restricted to £12 million. Each project is divisible (that is, it is possible to undertake part of a project if required).
Which investment project(s) should the business undertake?
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The above calculations indicate that Project Y provides t...View the full answer
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