Question

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 at a 12% discount rate Net present value Life of the project Internal rate of return Project Number 1 2 3 4 $ (500,000) 586,080 $ 86,080 9 years 16% $ (450,000) 522,000 $ 72,000 18 years 15% $ (220,000) 266,400 $ 46,400 9 years 17% $ (470,000) 616,650 $ 146,650 6 years 22% Because the company's 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 can't accept all of the available projects. Required: 1. Compute the project profitability index for each investment project. (Round your answers to 2 decimal places.) Project Profitability Index 1 2 3 4 2. Rank the four projects according to preference, in terms of net present value, project profitability index and internal rate of return. First preference Second preference Third preference Fourth preference Net Present Value Project Profitability Index Internal Rate of Return

          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 at a 12% discount rate
Net present value
Life of the project
Internal rate of return
Project Number
1
2
3
4
$ (500,000)
586,080
$ 86,080
9 years
16%
$ (450,000)
522,000
$ 72,000
18 years
15%
$ (220,000)
266,400
$ 46,400
9 years
17%
$ (470,000)
616,650
$ 146,650
6 years
22%
Because the company's 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 can't accept all of the available projects.
Required:
1. Compute the project profitability index for each investment project. (Round your answers to 2 decimal places.)
Project
Profitability
Index
1
2
3
4
2. Rank the four projects according to preference, in terms of net present value, project profitability index and internal rate of return.
First preference
Second preference
Third preference
Fourth preference
Net Present
Value
Project
Profitability
Index
Internal Rate
of Return

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 at a 12% discount rate
Net present value
Life of the project
Internal rate of return
Project Number
1
2
3
4
(500,000)
586,080 86,080
9 years
16%
(450,000)
522,000 72,000
18 years
15%
(220,000)
266,400 46,400
9 years
17%
(470,000)
616,650 146,650
6 years
22%
Because the company's 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 can't accept all of the available projects.
Required:
1. Compute the project profitability index for each investment project. (Round your answers to 2 decimal places.)
Project
Profitability
Index
1
2
3
4
2. Rank the four projects according to preference, in terms of net present value, project profitability index and internal rate of return.
First preference
Second preference
Third preference
Fourth preference
Net Present
Value
Project
Profitability
Index
Internal Rate
of Return

Added by Inmaculada V.

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