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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%

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%

FINANCIAL ACCOUNTING
FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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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%
Transcribed Image Text: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%
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