PLEASE ANSWER ALL PARTS TO THE QUESTION! THANK YOU! Preference Ranking of Invest
ID: 2477259 • Letter: P
Question
PLEASE ANSWER ALL PARTS TO THE QUESTION! THANK YOU!
Preference Ranking of Investment Projects [L013-5] The management of Revco Products is exploring four different investment opportunities. Information on the four projects under study follows: Because the company's required rate of return is 10%, a 10% 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. (Round your answers to 2 decimal places.) Rank the four projects according to preference, in terms of net present value, project profitability index and internal rate of return.Explanation / Answer
Answer:
1) Calculation of Profitability Index for each Investment project
Profitability Index = Present Value of Cash Inflows / Present Value of Cash Outflows
Project
Profitability Index
1
479,050 / 410,000 = 1.17
2
415,654 / 360,000 = 1.15
3
326,625 / 260,000 = 1.26
4
447,660 / 380,000 = 1.18
2) Ranking
Net Present Value
Project Profitability Index
Internal Rate of Return
First Preference
Project 3
Project 3
Project 4
Second Preference
Project 4
Project 4
Project 3
Third Preference
Project 3
Project 1
Project 1
Fourth Preference
Project 2
Project 2
Project 2
Project
Profitability Index
1
479,050 / 410,000 = 1.17
2
415,654 / 360,000 = 1.15
3
326,625 / 260,000 = 1.26
4
447,660 / 380,000 = 1.18
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