The Arbors at Los Brisos and Ranch Pointe are being considered for investment. Our initial investment...

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The Arbors at Los Brisos and Ranch Pointe are being consideredfor investment. Our initial investment in the two propertiesare:
   The Arbors at Los Brisos $2,000,000
   Ranch Pointe $2,750,000

The cost of capital for our firm is 12%

We need to rank the projects according to the profitabilityindex.

The Arbors at Los Brisos Ranch Pointe
   Initial Investment    -$2,000,000-$2,750,000
Year 1    $450,000 $300,000
Year 2    $600,000 $500,000
Year 3    $750,000 $750,000
Year 4    $700,000 $875,000
Year 5    $700,000 $950,000

Which of the two should be ranked higher based upon profitabilityindex?
The Arbors at Los Brisos
Ranch Pointe
Neither because the profitability is less than 1.0
Not enough information available to determine.

Answer & Explanation Solved by verified expert

4.2 Ratings (866 Votes)

Answer The Arbors at Los Brisos should be ranked higher based upon profitability index Initial investment for The Arbors at Los Brisos2000000 Initial investment for Ranch Pointe2750000 Cash flows for The Arbors at Los Brisos Year 02000000 Year 1450000 Year 2600000 Year 3750000 Year 4700000 Year 5700000 Profitability See Answer

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The Arbors at Los Brisos and Ranch Pointe are being consideredfor investment. Our initial investment in the two propertiesare: The Arbors at Los Brisos $2,000,000 Ranch Pointe $2,750,000The cost of capital for our firm is 12%We need to rank the projects according to the profitabilityindex.The Arbors at Los Brisos Ranch Pointe Initial Investment -$2,000,000-$2,750,000Year 1 $450,000 $300,000Year 2 $600,000 $500,000Year 3 $750,000 $750,000Year 4 $700,000 $875,000Year 5 $700,000 $950,000Which of the two should be ranked higher based upon profitabilityindex?The Arbors at Los BrisosRanch PointeNeither because the profitability is less than 1.0Not enough information available to determine.

		The Arbors at Los Brisos
		Ranch Pointe
		Neither because the profitability is less than 1.0
		Not enough information available to determine.