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Chapter 8-4 The management of Revco Products

Question : Chapter 8-4 The management of Revco Products : 3033

Chapter 8-4

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. (Round your answers to 2 decimal places.)

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

 

Project Number

 

1

2

3

4

Investment required

$

(450,000

)

 

$

(400,000

)

 

$

(300,000

)

 

$

(420,000

)

Present value of cash inflows at a 10% discount rate

 

584,550

 

 

 

482,460

 

 

 

324,750

 

 

 

533,500

 

Net present value

$

134,550

 

 

$

82,460

 

 

$

24,750

 

 

$

113,500

 

Life of the project

 

11 years

 

 

 

22 years

 

 

 

11 years

 

 

 

8 years

 

Internal rate of return

 

16

%

 

 

13

%

 

 

12

%

 

 

17

%

                               

 

Solution
5 (1 Ratings )

Solved
Finance 10 Months Ago 111 Views
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