Question

requirement 2

The management of Revco Products is exploring four different investment opportunities. Information on the four projects under study follows: Project Number 1 2 3 Investment $ (540,000) $ ( 390,000) $ (340 ,000) (450,000) required Present value of cash inflows at a 8% discount 715,947 $ 175,947 549,775 416,102 399,353 rate 99,775 26,102 59,353 Net present value $ Life of the 12 years б уеars 3 years б уеars project Internal rate of 15% 148 10% 178 return 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 Required: 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 Required 1 2 Compute the project profitability index for each investment project. (Round your answers to 2 decimal places.) Project Profitabilit Index 1 2 3 4 Required 2 Required 1

Answer 1

Profitability of Index Net present Value / Investment Required Calculation of Profitability Index 1 2 3 4 Investment Required 450000 540000 390000 340000 Net Present Value 99775 175947 59353 26102 Profitablility index: (Net present value / Investment) 0.175 0.222 0.326 0.067 Answers Investmnet Proposal Project PI 0.22 OR 1.22 0.33 OR 1.33 0.07 OR 1.07 0.17 OR 1.17 1 2 3 4 Internal Profitability Rate of Net Present Value index return First Preference 2 2. 4 Second Preference Third Preference Fourth Preference 1 1 4 4 2 3 3 A1