question archive The management of Revco Products is exploring four different investment opportunities
The management of Revco Products is exploring four different investment opportunities
Subject:AccountingPrice: Bought3
The management of Revco Products is exploring four different investment opportunities. Information on the four projects under study follows:Project 1Project 2Project 3Project 4Investment required$(270,000)$(450,000)$(360,000)$(480,000)Present value of cash at inflows at 10% discount rate336,140522,970433,400567,270Net present value$66,140$72,970$73,400$82,270Life of the project6 years3 years12 years6 yearsInternal rate of return18%19%14%15%Because of the company’s required rate of return is 10%, 1 10% discount rate has been used in the present, value computations above. Limited funds are available for investment, so the company cant accept all of the available projects.Required:compute the project profitability index for each investment project.Rank the four projects according to preference, in terms of:Net present valueProject profitability indexInternal rate of returnWhich ranking do you prefer? Why?
