The management of Revco Products is exploring four different investment opportunities.nformation on the four projects under study follows:Project Number2Investment requiredPresent value of cash inf lows at a$(560,000)$(510,000) $(410,000)$(35111% discount rate592,636$ 32,636577,822$ 67,822452,691$ 42,691441Net present valueLife of the project6 years13%12 years6 years3Internal rate of return14%15%Because the company's required rate of return is 11%, a 11% discount rate has been usedn the present value computations above. Limited funds are available for investment, sohe 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 net present value, projectprofitability index and internal rate of return.Complete this question by entering your answers in the tabs below.Required 1Required 2Compute the project profitability index for each investment project. (Round your answers to 2ProfitabilityProjectIndex1234

Profitability index is the ratio of present value of cash flow to the initial investment and it must…

1. 3. Envestment required Present value of cash inflows at a $(560,000) $(510,000) $(410,000) $(350 11% discount rate 592,636 577,822 $ 67,822 452,691 $ 42,691 441 let present value Life of the project Internal rate of return $ 32,636 $ 9 6 years 13% 12 years 6 years 3 14% 15% 140/ 119/

1. 3. Envestment required Present value of cash inflows at a $(560,000) $(510,000) $(410,000) $(350 11% discount rate 592,636 577,822 $ 67,822 452,691 $ 42,691 441 let present value Life of the project Internal rate of return $ 32,636 $ 9 6 years 13% 12 years 6 years 3 14% 15% 140/ 119/

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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Concept explainers

Production Budget

A budget can be defined as a financial plan designed by an undertaking for a definite period in the future that can contribute towards enhancing the financial success of the business undertaking. It is used to estimate the revenue and expenses. The budget generally takes into account both current and future income and expenses.

Question

The management of Revco Products is exploring four different investment opportunities.
nformation on the four projects under study follows:
Project Number
2
Investment required
Present value of cash inf lows at a
$(560,000)
$(510,000) $(410,000)
$(351
11% discount rate
592,636
$ 32,636
577,822
$ 67,822
452,691
$ 42,691
441
Net present value
Life of the project
6 years
13%
12 years
6 years
3
Internal rate of return
14%
15%
Because the company's required rate of return is 11%, a 11% discount rate has been used
n the present value computations above. Limited funds are available for investment, so
he 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 net present value, project
profitability index and internal rate of return.
Complete this question by entering your answers in the tabs below.
Required 1
Required 2
Compute the project profitability index for each investment project. (Round your answers to 2
Profitability
Project
Index
1
2
3
4

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A Ld. is considering a Project having a life of 5 year with following cash flows Project I 30,000 Outfiow Inflow T-1 T-2 T-3 8,000 9.000 9,000 7,000 5,000 T-4 T-5 P.V. Table Year 20 833 10 26 794 30 356 909 326 796 J41 549 406 301 223 .694 630 592 455 .751 683 621 579 482 500 397 4. 350 402 315 269 Caleulate IRR of the above project.
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Project A has the following information: Year 0 1 2 3 4 5 Initial investment outlay 125,000 Cash inflows 75,000 80,000 95,000 95,000 86,250 Personnel expenses 22,500 22,500 22,500 22,500 22,500 Material expesnes 15,000 20,000 22,500 22,500 22,500 Maintenance expenses 2,500 2,500 5,000 8,750 10,000 Other cash outflows 3,750 3,750 3,750 5,000 5,625 Liquidation value 12,500 Project B has the following information: Year 0 1 2 3 4 5 Initial investment outlay 225,000 Cash inflows 155,000 140,000 108,750 93,750 125,000 Personnel expenses 27,500 27,500 27,500 27,500 27,500 Material expenses 25,000 22,500 22,500 22,500 24,000 Maintenance expesnses 8,750 11,250 17,500 15,000 14,000 Other cash outflows 6,250 3,750 3,750 3,750 4,000 Liquidation value 15,000 The Discount Rate is 8%Assess the relative profitability of the two options using the following methods:(i) The Annuity Method(ii) The Net…
Net Cash Flows and NPVs for different discount rate for projects S and L are given below Net Cash Flows ($) Discount Rate (%) NPVS NPVL Year (t) Project S Project L 0% $800 $1100 0 $(3000) $(3000) 5 454.85 554.32 1 1500 400 10 161.33 108.59 2 1200 900 15 (90.74) (259.24) 3 800 1300 20 (309.03) (565.97) 4 300 1500 25 a) Calculate the discounted payback period in years at 10% for the Project S and Project L i) Payback for Project S: ii) Payback for Project L: b) Calculate NPVS for 25% and NPVL for 25%. Fill the table i) NPVS at 25%: ii) NPVL at 25%: c What is the IRR for S? (Write down the equation for IRR and then Use an excel worksheet to calculate IRR Equation: Answer: d) What is the IRR for L? (Write down the equation for IRR and then Use an excel worksheet to calculate IRR Equation: Answer: e) What is the…

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