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The management of Revco Products is exploring four different investment opportunities. Information on the four projects under study follows: Project Number 1 2 3 4
The management of Revco Products is exploring four different investment opportunities. Information on the four projects under study follows:
Project Number | |||||||||||||||
1 | 2 | 3 | 4 | ||||||||||||
Investment required | $ | (630,000 | ) | $ | (580,000 | ) | $ | (430,000 | ) | $ | (550,000 | ) | |||
Present value of cash inflows at a 10% discount rate | 672,900 | 665,973 | 538,320 | 708,680 | |||||||||||
Net present value | $ | 42,900 | $ | 85,973 | $ | 108,320 | $ | 158,680 | |||||||
Life of the project | 6 years | 12 years | 6 years | 3 years | |||||||||||
Internal rate of return | 11 | % | 12 | % | 17 | % | 25 | % | |||||||
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Because the companys required rate of return is 9%, a 9% discount rate has been used in the present value computations above. Limited funds are available for investment, so the company cant accept all of the available projects.
Required:
1. Compute the project profitability index for each investment project. (Round your answers to 2 decimal places.)
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