The management of Riker Inc. is exploring five different investment opportunities. Information on the five projects under study follows:

	Project Number
	1		2		3		4		5
Investment required	$	(310,000	)		$	(270,000	)		$	(390,000	)		$	(480,000	)		$	(330,000	)
Present value of cash inflows at a 10% discount rate		394,630				340,260				482,970				570,930				278,850
Net present value	$	84,630			$	70,260			$	(92,970	)		$	90,930			$	51,150
Life of the project		6 years				3 years				5 years				12 years				6 years

The companys required rate of return is 10%; thus, a 10% discount rate has been used in the preceding present value computations. Limited funds are available for investment, and so the company cannot accept all of the available projects.

Required:

1. Compute the profitability index for each investment project. (Round your answers to 2 decimal places.)

2. Rank the five projects according to preference, in terms of (a) net present value, (b) profitability index.

3. Which ranking do you prefer?

multiple choice

Net present value

Profitability index