value: 1.00 points The management of Revco Products is exploring four different

Question

value: 1.00 points The management of Revco Products is exploring four different investment opportunities. Information on the four projects under study follows Project Number 4 Investment required $(450,000) $(540,000) $(390,000) $(420,000) 618,300 Present value of cash inflows at a 8% discount rate Net present value Life of the project 624,720 $174,720 7 years 624,720 78,300 $ 234,720 7 years 496,800 76,800 4 years 14 years 10% Internal rate of return 19% 24% 16% Because the company's required rate of return is 8%, a 8% 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 Profitability Index 4

Explanation / Answer

1. Calculation of Profitability index :-

Profitability index = Present value of future net cash flows / Intial investment

2. Ranking projects according to the preferencses :-

Project Present value of net cash flows Intial investment Profitab1.ility index 1 624720 450000 1.39 2 618300 540000 1.15 3 624720 390000 1.60 4 496800 420000 1.18

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