Calculate the profitability index of project

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An investor has a budget of $25 million. He can invest in the projects shown below. If the cost of capital is 10%, what investment or investments should he make?

Initial Investment Cash Flows (starting at the end of year 1)

Project A $17.5 million $10 million per year for 3 years

Project B $12.5 million $5 million per year for 6 years

Project C $15 million $7.5 million per year for 3 years

Project D $10 million $3.75 million per year for 8 years

Hint: Calculate the profitability index of each project. Profitability index = NPV/Investment.

Projects B and D

Projects C and D

Project A

Project B

Reference no: EM132515983

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