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The management of Revco Products is exploring four different investment opportunities. Information on the four projects under study follows: Investment required Present value of cash
The management of Revco Products is exploring four different investment opportunities. Information on the four projects under study follows: Investment required Present value of cash inflows Net present value Life of the project Internal rate of return 1 $ (270,000) 336, 140 $ 66,140 6 years 18% 2 $ (450,000) 522,970 $ 72,970 Project Number 3 years 19% 3 $ (360,000) 433,400 $ 73,400 12 years 14% 4 $ (480,000) 567,270 $ 87,270 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. 6 years 16%
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