Accounting: What the Numbers Mean 9th Edition by Wayne W McManus, Daniel F Viele, David H Marshall

Exercise 59

Present value ratios index Information about four investment proposals is summarized here:

Proposal	Investment Required	Net Present Value
1	$60,000	$36,000
2	24,000	9,600
3	72,000	36,000
4	72,000	14,400

Required:

Calculate the present value ratio of each proposal and indicate which proposal is the most desirable investment.

Step 1 of 3

Present value ratio or profitability index

Present value ratio or profitability index (PI ): It refers to the present value of inflows in proportion to the present value of investment or cash outflows.