Reference no: EM133158311

Question - Pseudo Enterprise has ambitious expansion plans for 2022. At a recent Annual General Meeting, the shareholders approved the proposal for further expansion and the board of directors has allocated £330,000 for new projects. As the Senior Manager of Pseudo Enterprise, you have been authorised to conduct the project appraisal for five new projects and submit a recommendation to management on how best to spend £330,000 for new projects.

The projects you are considering have the following information:

Year	0	1	2	3	4
	(£,000)	(£,000)	(£,000)	(£,000)	(£,000)
Project 1	-105	0	180	0	0
Project 2	-150	90	90	90	0
Project 3	-60	30	30	30	30
Project 4	-90	45	45	45	45
Project 5	-180	210	0	0	0

The cash flows are confined to the lifetime of each project. Apart from initial investments that occur at the beginning of the project, all cash flows occur at year end. The following information on the projects is available:

- The cost of capital is 10%,

- Assume no taxes,

- Projects are independent and divisible

Required - Calculate the profitability index for each of the five projects.