Divisible
Projects Example
Divisible project is a
project which can be undertaken in part (divide) and provides proportionate return.
Profitability index is used to rank the divisible projects. Following example
would explain the concept of divisibility projects ranking and selection.
Example
Mr. A has $ 500 fund and
want to invest those fund in some project. He has the following divisible
projects
|
Project
|
Funds Requirement
|
NPV
|
|
A
|
210
|
35
|
|
B
|
250
|
45
|
|
C
|
230
|
40
|
|
D
|
300
|
60
|
Help Mr. A for righ
selection of projects
Solution
1. Calculate profitability Index
|
Project
|
Funds Requirement
|
NPV
|
P. Index
|
|
A
|
200
|
35
|
=35/210
=.166
|
|
B
|
250
|
45
|
=45/250
=.18
|
|
C
|
230
|
40
|
=40/230
= .175
|
|
D
|
300
|
60
|
=60/300
=.2
|
2. Rank the project (according to Profitability
Index)
|
Profitability
Index
|
Ranking
|
|
.2
|
D
|
|
.18
|
B
|
|
.175
|
C
|
|
.166
|
A
|
3. Fund Utilization according to Ranking
|
Project
|
Funds utilized
|
Balance
|
NPV
|
|
D
|
300
|
200
|
60
|
|
B 80%
|
200
|
0
|
35 (80% of 45)
|
|
Total NPV
|
|
|
95
|
|
|
|
|
|
|
|
|
|
|
