Question

The management of Revco Products is exploring four different investment opportunities. Information on the four projects under study follows: Project Number $(568, 690) Investment required Present value of cash inflows at a 8% discount rate Net present value Life of the project Internal rate of return $(610, Bee) 647,538 S 37,538 648,059 $ 88,059 12 years 11% $(410, 880) 471 See $ 61,589 6 years $(328,888) 368, 735 $ 40,735 6 years 3 years 15% les Because the company's required rate of return is 8%, a 8% 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. Requlred: 1. Compute the project profitability Index for each investment project 2. Rank the four projects according to preference, in terms of net present value, project profitability index and internal rate of return Complete this question by entering your answers in the tabs below. Required 1 Required 2 Compute the project profitability index for each investment project. (Round your answers to 2 decimal places.) Project Profitability Index

Answer 1

Correct Answer:

	A	B	C=B/A
Project	Initial cash required	Present value of the investment	Profitability index
1	$    610,000	$            647,538	1.06
2	$    560,000	$            648,059	1.16
3	$    410,000	$            471,500	1.15
4	$    320,000	$            360,735	1.13

End of answer.

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