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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/

Managerial Accounting
Managerial Accounting
15th Edition
ISBN:9781337912020
Author:Carl Warren, Ph.d. Cma William B. Tayler
Publisher:Carl Warren, Ph.d. Cma William B. Tayler
Chapter12: Capital Investment Analysis
Section: Chapter Questions
Problem 2PA
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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
Transcribed Image Text: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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