The management of Revco Products is exploring four different investment opportunities.Information on the four projects under study follows: Project Number 1 2 3 4 Investmentrequired $ (270,000) $ (450,000) S (360,000) $ (480,000) Present value of cash inflows336, 140 522,970 433, 400 567, 270 Net present value $ 66, 140 $ 72,970 $ 73,400 $ 87,270 Lifeof the project 6 years 3 years 12 years 6 years Internal rate of return 18% 19% 14% 16% Thenet present values above have been computed using a 10% discount rate. Limited funds areavailable for investment, so the company can't accept all of the available projects. Required:Compute the profitability index for each investment project. Rank the four projects according topreference, in terms of net present value, profitability index, and internal rate of return.

Computation of profitability index for each investment project.Profitability index = Present value…

Answered: Compute the profitability index for…

Compute the profitability index for each investment project. Rank the four projects according preference, in terms of net present value, profitability index, and internal rate of return.

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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Question

The management of Revco Products is exploring four different investment opportunities.
Information on the four projects under study follows: Project Number 1 2 3 4 Investment
required $ (270,000) $ (450,000) S (360,000) $ (480,000) Present value of cash inflows
336, 140 522,970 433, 400 567, 270 Net present value $ 66, 140 $ 72,970 $ 73,400 $ 87,270 Life
of the project 6 years 3 years 12 years 6 years Internal rate of return 18% 19% 14% 16% The
net present values above have been computed using a 10% discount rate. Limited funds are
available for investment, so the company can't accept all of the available projects. Required:
Compute the profitability index for each investment project. Rank the four projects according to
preference, in terms of net present value, profitability index, and internal rate of return.

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Please explain the answer thoroughly and support it with an example. True or False: In preference decisions, the profitability index and internal rate of return methods will rank projects in the same order of preference.
1. State the criterion for accepting or rejecting independent projects under each of the following methods. - Profitability index - Discounted payback period - Accounting rate of return - Net present value - Payback period - Internal rate of return
List and describe four different types of real options that are associated with investment projects.
Oxford Company has limited funds available for investment and must ration the funds among four competing projects. Selected information on the four projects follows: Life of Net the Internal Project (years) of Return Investment Present Rate Project Required $970,000 $730,000 $670,000 $830,000 Value $176,514 $175,933 $185,782 $129,082 A 6. 16% В 11 15% C 19% 17% The net present values above have been computed using a 10% discount rate. The company wants your assistance in determining which project to accept first, second, and so forth.
We learn there are three primary methods used to analyze capital investment proposals. Please compare and contrast these three methods. Be sure to include strengths (benefits) and weaknesses (drawbacks) of each. Three primary methods are: Payback method Internal rate of return Net present value.
When choosing between two projects of different scales, which of the following methodologies is best employed? a. Probability index to rank projects b. Equivalent annuities method c. Replacement chain method d. IRR method
The Net Present Value considers which of the following inputs: The internal rate of return The accounting rate of return The initial amount investment The annual accounting profit throughout the project’s operating life.
Which of the following can be used to place capital investment proposals involving different amounts of investment on a comparable basis for purposes of net present value analysis? a. future value index b. price-level index c. rate of investment index d. present value index
how to Calculate and use the major capital budgeting decision criteria, which are NPV, IRR, MIRR, and payback.
Which provides a better estimate of a project’s “true” rate of return, the MIRR or theregular IRR? Explain.
Internal rate of return and modified internal rate of return For the project shown in the following table,, calculate the internal rate of return (IRR) and modified internal rate of return (MIRR). If the cost of capital is 12.13%, indicate whether the project is acceptable according to IRR and MIRR. The project's IRR is %. (Round to two decimal places.) Data table (Click on the icon here in order to copy the contents of the data table below into a spreadsheet.) Initial investment (CF) Year (t) 1 2 3 4 5 Print $70,000 Cash inflows (CFt) $15,000 $25,000 $25,000 $15,000 $10,000 Done X
Please describe NPV, IRR and their relationship. How do you evaluate each for making an investment decision? That is, what is a favorable NPV and IRR for making an investment decision. If you were developing a capital budgeting process at your employer, how would you prioritize your projects? What is the NPV when IRR = WACC, IRR>WACC, and IRR<WACC? There is a duplex for sale in Absecon for $700,000 at this time. It has 2 units that generate a total of $25,000 in gross rent. The property taxes are $4,000, commercial property insurance is $2,000, flood insurance is $1,000, and annual maintenance is $2,000. You expect to sell it in one year at a price growth of 0%. What is the NPV with a WACC of 10%. Is the IRR greater or less than the WACC? Would you invest in this project and why?

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