The management of Scarborough Corporation has four projects to consider:

Project Number

1 2 3 4

Investment required: $500,000 $350,000 $280,000 $450,000

PV of cash inflows $ 567,270 433,400 336,140 522,970

Net Present Value $ 87,270 $ 73,400 $ 66,140 $ 72,970

Life of the project 6 years 2 years 6 years 3 years

Internal rate of return 16% 14% 18% 19%

The company has a required rate of return of 10%, and has used this rate in deter-mining the above present values - as the company has a limited budget, and cannot undertake all of the projects at the present time, you have been hired to advise the company on how to proceed.

1. Determine the project Profitability Index [PI] for each project
2. Rank the projects on the following bases:
3. Net present values
4. Project profitability index
5. IRR
6. Provide a brief discussion with the management of the company on how they may use the information you have provided - Pay attention to the life of the individual projects