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)   $ (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: I need help finding 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.

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
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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)   $ (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:

  1. I need help finding the profitability index for each investment project.

  2. Rank the four projects according to preference, in terms of net present value, profitability index, and internal rate of return.

**Assignment Instructions:**

Complete this question by entering your answers in the tabs below.

**Tabs:**
- Required 1
- Required 2

**Task:**

Compute the profitability index for each investment project.

**Note:** Round your answers to 2 decimal places.

**Table to Fill:**

| Project | Profitability Index |
|---------|----------------------|
| 1       |                      |
| 2       |                      |
| 3       |                      |
| 4       |                      |

Please provide the computed profitability index values for projects 1 to 4 in the table above.
Transcribed Image Text:**Assignment Instructions:** Complete this question by entering your answers in the tabs below. **Tabs:** - Required 1 - Required 2 **Task:** Compute the profitability index for each investment project. **Note:** Round your answers to 2 decimal places. **Table to Fill:** | Project | Profitability Index | |---------|----------------------| | 1 | | | 2 | | | 3 | | | 4 | | Please provide the computed profitability index values for projects 1 to 4 in the table above.
Complete this question by entering your answers in the tabs below.

**Rank the four projects according to preference, in terms of net present value, profitability index, and internal rate of return.**

|                                | Net Present Value | Profitability Index | Internal Rate of Return |
|--------------------------------|-------------------|---------------------|-------------------------|
| **First preference**           |                   |                     |                         |
| **Second preference**          |                   |                     |                         |
| **Third preference**           |                   |                     |                         |
| **Fourth preference**          |                   |                     |                         |

Below the table, there are two navigation buttons labeled "Required 1" and "Required 2." The "Required 1" button is highlighted, indicating it is currently selected.
Transcribed Image Text:Complete this question by entering your answers in the tabs below. **Rank the four projects according to preference, in terms of net present value, profitability index, and internal rate of return.** | | Net Present Value | Profitability Index | Internal Rate of Return | |--------------------------------|-------------------|---------------------|-------------------------| | **First preference** | | | | | **Second preference** | | | | | **Third preference** | | | | | **Fourth preference** | | | | Below the table, there are two navigation buttons labeled "Required 1" and "Required 2." The "Required 1" button is highlighted, indicating it is currently selected.
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