The management of Revco Products is exploring four different investment opportun

Question

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 fund are available for investment, so the company can't accept all of the available projects. Compute the project profitability index for each investment project. (Round your answer 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

Statement showing computations Particulars Project 1 Project 2 Project 3 Project 4 Investment Required (410,000.00)      (360,000.00)                       (260,000.00)                       (380,000.00) Present value of cash inflows @10% disc rate      479,050.00         415,654.00                         326,625.00                         447,660.00 Profitability Index = PVCI/Invt Reqd                   1.17                      1.15                                      1.26                                      1.18 Ranking                   3.00                      4.00                                      1.00                                      2.00 Net Present Value = PVCI - Invt        69,050.00           55,654.00                           66,625.00                           67,660.00 Ranking                   1.00                      4.00                                      3.00                                      2.00 IRR 16% 13% 18% 20% Ranking                   3.00                      4.00                                      2.00                                      1.00

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