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 Investment required $(420,000) $(370,000 $(270,000) $(390,000) 456,754 360,232 Present value of cash inflows at a 10% discount rate Net present value Life of the project 360,232 507,200 $ 115,480 86,754 $ 90,232 $117,200 4 years 535,480 7 years 20% 7 y ears 18% 14 years 14% Internal rate of return 23% 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: 1. Compute the project profitability index for each investment project. (Round your answers to 2 decimal places.) Project Profitabili Index

Explanation / Answer

PROJECT 1 2 3 4 present value of cash flow 535480 456754 360232 507200 cash outflow 420000 370000 270000 390000 NPV 115480 86754 90232 117200 PROFITABILLITY INDEX 1.274952 1.23447 1.334193 1.300513 PREFERENCE OF PROJECT IRR NPV PI 1 3 1 3 2 4 4 4 3 2 3 1 4 1 2 2

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