Question
The management of Revco Products is exploring four different investment opportunities. Information on the four projects under study follows: Projects 1234 Investment required (470,000) (420,000)
The management of Revco Products is exploring four different investment opportunities. Information on the four projects under study follows:
Projects
1234
Investment required (470,000) (420,000) (320,000) (390,000)
Present value of cash inflows at 12% dis rate 538,359 507,903 378,240 444,393
Net Present value 68,359 87,903 58,240 54,393
Life of the project 6 years 12 years 6 years 3 years
Internal rate of return 17% 16% 18% 20%
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.)
2. Rank the four projects according to preference, in terms of net present value, project profitability index and internal rate of return.
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