Item 3

The management of Revco Products is exploring five different investment opportunities. Information on the five projects under study follows:

		Project Number
		1				2				3				4				5
Investment required		$	(270,000	)		$	(450,000	)		$	(400,000	)		$	(360,000	)		$	(480,000	)
Present value of cash inflows at a 10% discount rate			336,140				522,970				379,760				433,400				567,270
Net present value		$	66,140			$	72,970			$	(20,240	)		$	73,400			$	87,270
Life of the project			6 years				3 years				5 years				12 years				6 years

The companys required rate of return is 10%; thus, a 10% 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.)

2.Rank the five projects according to preference, in terms of (a) net present value, (b) profitability index.