Question

The following table contains information about four projects in which Morales Corporation has the opportunity to invest. This information is based on estimates that different managers have prepared about their potential project.

	Investment	Net Present	Life of	Internal Rate		Profitability	Payback Period	Accounting Rate
Project	Required	Value	Project	of Return		Index	in Years	of Return
A. . . . . .	$200,000	$52,350	5	22	%	1.26	2.86	20	%
B. . . . . .	$400,000	$72,230	6	25	%	1.18	2.96	15	%
C. . . . .	$1,000,000	$224,075	3	20	%	1.22	2.11	10	%
D. . . . .	$1,500,000	$85,000	4	13	%	1.06	3.00	21	%

Requirements

1.	Rank the four projects in order of preference by using the
	a. net present value. b. project profitability index. c. internal rate of return. d. payback period. e. accounting rate of return.
2.	Which​ method(s) do you think is best for evaluating capital investment projects in​ general? Why?

Answer 1

			a. By NPV			b. By profitability index			c. by IRR				d. Payback period			e. by ARR
1.		Investment	Net Present	Rank		Profitability	Rank		Internal Rate		Rank		Payback Period	Rank		Accounting Rate
	Project	Required	Value			Index			of Return				in Years			of Return		Ranking
	A. . . . . .	$200,000	$52,350	4		1.26	1		22	%	2		2.86	3		20	%	2
	B. . . . . .	$400,000	$72,230	3		1.18	3		25	%	1		2.96	2		15	%	3
	C. . . . .	$1,000,000	$224,075	1		1.22	2		20	%	3		2.11	4		10	%	4
	D. . . . .	$1,500,000	$85,000	2		1.06	4		13	%	4		3	1		21	%	1
2.	The best method of the project appraisal would be NPV method, as it considers the time value of money, plus it considers the size of the project.
	Hence, by using NPV management would be able to know that how much wealth is gonna create by adopting a particular project.
	Profitability index and IRR considers the time value of money but ignores the size of investment and cash flows.
	Payback period and ARR ignores time value of money, hence not suitable for investment appraisal.