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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 $ (460,000 ) $ (410,000 ) $ (310,000 ) $ (430,000 )
Present value of cash inflows at a 12% discount rate 534,420 496,925 385,970 546,480
Net present value $ 74,420 $ 86,925 $ 75,970 $ 116,480
Life of the project 11 years 22 years 11 years 8 years
Internal rate of return 16% 15% 17% 19%

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.

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