The management of Revco Products is exploring four different investment opportun
ID: 2431807 • Letter: T
Question
The management of Revco Products is exploring four different investment opportunities. Information on the four projects under study follows:
Project Number
Because the company’s required rate of return is 11%, a 11% 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.
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.
The management of Revco Products is exploring four different investment opportunities. Information on the four projects under study follows:
Explanation / Answer
Dear Student Thank you for using Chegg Please find below the answer Statementshowing Computations Project Number Paticulars 1.00 2.00 3.00 4.00 Investment required (570,000.00) (500,000.00) (370,000.00) (540,000.00) Present value of cash inflows at a 11% discount rate 647,790.00 637,040.00 477,009.00 706,800.00 Net present value 77,790.00 137,040.00 107,009.00 166,800.00 Internal rate of return 14.00% 15.00% 18.00% 20.00% 1) Projet profitability Index = Present value of cash inflows/ investment reqd 1.14 1.27 1.29 1.31 2) Ranking as per NPV 4.00 2.00 3.00 1.00 Ranking as perprofitability index 4.00 3.00 2.00 1.00 Ranking as per internal rate of return 4.00 3.00 2.00 1.00
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