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:FinancePrice: Bought3
The management of Revco Products is exploring four different investment opportunities. Information on the four projects under study follows:Project Number Investment required 1(270,01E0) 1(450 000) 1(360.000) R480.000) Present value of cash inflows at a 10% discount rate 336 L40 52:1 433 400 Net present value 1100 73,400 _i61.110 Life of the project 6 years 3 years 12 years 6 years Internal rate of return 18% 19% 14% 16%
The company’s required rate of return is 10%; thus, 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:
1. Compute the project profitability index for each investment project.
2. Rank the four projects according to preference, in terms of:
(a) Net present value
(b) Project profitability index
(c) Internal rate of return
3. Which ranking do you prefer?Why?
