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Homework answers / question archive / The management of Revco Products is exploring four different investment opportunities
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 at a 10% discount rate 

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 
% 

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 net present value, project profitability index and internal rate of return.
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