Exercise 10-4 Calculating the Profitability Index (LO2- CC10) The management of Revco Products is exploring five different investment opportunities. Information on the five projects under study follows: Project Number $(261,000) 5(440,000) $(413,000) $(374.600) $(480,000) Investment required Present value of cash Inflows at a 9% discount rate Net present value Life of the project 320, 320 $ 59,320 Se7, 120 $ 67,120 3 years 393.46 5 (14,600) 5 years 452,6ee $78,600 12 years 6 years 542,300 $ 62,300 6 years The company's required rate of return is 9%; thus, a 9% discount rate has been used in the preceding present value computations Limited funds are available for investment, and so the company cannot accept all of the available projects. Required: 1. Compute the profitability index for each investment project. (Round your answers to 2 decimal places.) Project Profitability Index 1 2 2. Rank the five projects according to preference, in terms of (a) net present value. (b) profitability index Net Present Value Profitability Index First preference Second preference Third preference Fourth preference Fifth preference 3. Which ranking do you prefer? O Net present value O Profitability index