1. Senior management at ACME faces four potential investment opportunities:

1

Funds Needed

Present Value of Cash inflows

Net Present Value

Project Life

Internal Rate of Return (IRR)

2

$960,000

$1,134,540

$174,540

6 years

16%

3

$720,000

$866,800

$146,800

12 years

14%

4

$540,000

$672,280

$132,280

6 years

18%

$900,000

$1,045,940

$145,940

3 years

19%

ACME is currently operating in a capital-constrained environment. Rank the four investment projects according to NPV, IRR and profitability index. Which criteria do you use to make your recommendation and why? EXPLAIN.