The management of Riker Inc. is exploring five different investment opportunities. Information on the five projects under study follows: Project Number 1 2 3 4 5 Investment required $ (310,000 ) $ (270,000 ) $ (390,000 ) $ (480,000 ) $ (330,000 ) Present value of cash inflows at a 10% discount rate 394,630 340,260 482,970 570,930 278,850 Net present value $ 84,630 $ 70,260 $ (92,970 ) $ 90,930 $ 51,150 Life of the project 6 years 3 years 5 years 12 years 6 years The company’s required rate of return is 10%; thus, a 10% discount rate has been used in the preceding present value computations. Limited funds are available for investment, and so the company cannot accept all of the available projects. Required: 1. Compute the profitability index for each investment project. (Round your answers to 2 decimal places.) 2. Rank the five projects according to preference, in terms of (a) net present value, (b) profitability index. 3. Which ranking do you prefer? multiple choice Net present value Profitability index
The management of Riker Inc. is exploring five different investment opportunities. Information on the five projects under study follows: Project Number 1 2 3 4 5 Investment required $ (310,000 ) $ (270,000 ) $ (390,000 ) $ (480,000 ) $ (330,000 ) Present value of cash inflows at a 10% discount rate 394,630 340,260 482,970 570,930 278,850 Net present value $ 84,630 $ 70,260 $ (92,970 ) $ 90,930 $ 51,150 Life of the project 6 years 3 years 5 years 12 years 6 years The company’s required rate of return is 10%; thus, a 10% discount rate has been used in the preceding present value computations. Limited funds are available for investment, and so the company cannot accept all of the available projects. Required: 1. Compute the profitability index for each investment project. (Round your answers to 2 decimal places.) 2. Rank the five projects according to preference, in terms of (a) net present value, (b) profitability index. 3. Which ranking do you prefer? multiple choice Net present value Profitability index
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 Riker Inc. is exploring five different investment opportunities. Information on the five projects under study follows:
| Project Number | |||||||||||||||||||
| 1 | 2 | 3 | 4 | 5 | |||||||||||||||
| Investment required | $ | (310,000 | ) | $ | (270,000 | ) | $ | (390,000 | ) | $ | (480,000 | ) | $ | (330,000 | ) | ||||
discount rate |
394,630 | 340,260 | 482,970 | 570,930 | 278,850 | ||||||||||||||
| $ | 84,630 | $ | 70,260 | $ | (92,970 | ) | $ | 90,930 | $ | 51,150 | |||||||||
| Life of the project | 6 years | 3 years | 5 years | 12 years | 6 years | ||||||||||||||
The company’s required
Required:
1. Compute the profitability index for each investment project. (Round your answers to 2 decimal places.)
2. Rank the five projects according to preference, in terms of (a) net present value, (b) profitability index.
3. Which ranking do you prefer?
multiple choice
Net present value
Profitability index
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