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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

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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 Investment required Present value of cash inflows $ (270,000) 336,140 $ (450,000) 522,970 $ (360,000) 433,400 $ (480,000) 567,270 Net present value $ 66,140 $ 72,970 Life of the project Internal rate of return 6 years 18% 3 years 19% $ 73,400 12 years 14% $ 87,270 6 years 16% The net present values above have been computed using a 10% discount rate. Limited funds are available for investment, so the company can't accept all of the available projects. Required: 1. Compute the profitability index for each investment project. 2. Rank the four projects according to preference, in terms of net present value, profitability index, and internal rate of return.

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