Newago, Inc. is strapped for cash for investment projects and must decide which of four projects it will fund. Below are the projects and information about them:

Life Of:

Net The Internal

Investment Present Project Rate Of

Project Required Value In Yrs. Return

1. 80,000 210,000 6 13%

2. 750,000 340,000 10 17%

3. 845,000 333,000 7 12%

4. 695,000 202,000 5 18%

A. Compute the project profitability index for each project.

B. Rank the four projects in order of preference in terms of:

Internal rate Of Return

Project Profitability Index

Net Value

C. Which of the three rankings above do you prefer?

What are the strengths and weaknesses of each method?