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	$	(264,000	)		$	(435,000	)		$	(418,000	)		$	(364,000	)		$	(500,000	)
Present value of cash inflows at a 10% discount rate		334,640				510,970				398,360				444,600				579,200
Net present value	$	70,640			$	75,970			$	(19,640	)		$	80,600			$	79,200
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.

3. Which ranking do you prefer?

multiple choice

• Net present value

• Profitability index