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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 $ (640,000 ) $ (590,000 ) $ (440,000 ) $ (530,000 )
Present value of cash inflows at a 9% discount rate 704,620 661,810 528,465 680,400
Net present value $ 64,620 $ 71,810 $ 88,465 $ 150,400
Life of the project 7 years 14 years 7 years 4 years
Internal rate of return 12% 11% 15% 21%

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.

Compute the project profitability index for each investment project.

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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