Since limited funds are available for investment, Riley & Tanner Limited must ration the funds among four competing projects. Selected information on the four projects follows:

The present values of the net cash inflows above have been computed using a 103 discount rate. The company wants your assistance in determining which project to accept first, which to accept second, and so forth. The company's investment funds are limited.

Required:
1. Compute the project profitability index for each project.
2. In order of preference, rank the four projects in terms of
a. Net present value.
b. Project profitability index.
c. IRR.
3. Which ranking do you prefer? Why?

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2. 3. 4. Project Investment Required $1,960,000 1,553,750 1,225,000 1,715,000 Present Value of Cash Inflows $ 2,457,621 2,126,250 1,619,144 2,058,224 Life of the Project (years) 7 12 7 3 Internal Rate of Return 18% 23% 20% 22%