Question
The management of Revco Products is exploring four different investment opportunities. Information on the four projects under study follows: Because the companys required rate of
The management of Revco Products is exploring four different investment opportunities. Information on the four projects under study follows:
Because the companys required rate of return is 12%, a 12% 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.)
2. Rank the four projects according to preference, in terms of net present value, project profitability index and internal rate of return.
The management of Revco Products is exploring four different investment opportunities. Information on the four projects under study follows: Project Number $(490,000) $(440,000) $(340,000) $(460,000) Investment required 447,120 596,160 523,050 540,750 Present value of cash inflows at a 12% discount rate Net present value 106,160 83,050 107,120 80,750 Life of the project 8 years 8 years 16 years 5 years Internal rate of return 18% 15% 21% 19% Because the company's required rate of return is 12%, a 12% discount rate has been used in the present value computations above. Limited funds are available for investment, so the company can't accept all of the available projects Required: 1. Compute the project profitability index for each investment project. (Round your answers to 2 decimal places.) Profitability Project IndexStep by Step Solution
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