Question
The following table contains information about four potential investment projects that Castle Corporation is considering. Project Required Investment Project Life Acctg ROR Payback Period NPV
The following table contains information about four potential investment projects that Castle Corporation is considering.
| Project | Required Investment | Project Life | Acctg ROR | Payback Period | NPV | Profitability Index | |||||
| A | $ | 820,000 | 5 | 33.00 | % | 3.2 | $ | 387,750 | 1.19 | ||
| B | $ | 1,070,000 | 4 | 20.00 | % | 4.4 | $ | 491,562 | 2.06 | ||
| C | $ | 1,320,000 | 4 | 17.50 | % | 4.1 | $ | 218,920 | 1.53 | ||
| D | $ | 1,820,000 | 5 | 19.20 | % | 2.9 | $ | 248,258 | 1.48 | ||
Required:
1. Rank the four projects in order of preference under each method indicated by the headers:
2. Which method is the best for evaluating the investments?
multiple choice
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Net present value
-
Accounting rate of return
-
Payback period
-
Profitability index
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Fundamentals of Financial Management
Authors: Eugene F. Brigham, Joel F. Houston
12th edition
978-0324597707
