Answered: Project Number Investment required...…

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

See similar textbooks

Related questions

Question

Preference Ranking of Investment Projects

The management of Revco Products is exploring four different investment opportunities. Information on the four projects under study follows:

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.

2. Rank the four projects according to preference, in terms of:

a. Net present value

b. Project profitability index

c. Internal rate of return

3. Which ranking do you prefer? Why?

Project Number
Investment required...
Present value of cash inflows
at a 10% ciscount rate .
Net present value .
Life of the project.
Internal rate of return.
$(270,000) $(450,000) $(360,000) $(480.000)
522,970
433,400
$ 72,970 $ 73,400
567,270
336,140
$ 66,140
$ 87,270
6 years
18%
3 years
19%
12 years
6 years
16%
14%

Expert Solution

Trending now

This is a popular solution!

Step by step

Solved in 2 steps with 4 images

SEE SOLUTION Check out a sample Q&A here

Knowledge Booster

Learn more about

Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, accounting and related others by exploring similar questions and additional content below.

Similar questions