The management of Revco Products is exploring four different investment opportunities. Information on the four projects…

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
$
(620,000
)
$
(510,000
)
$
(420,000
)
$
(310,000
)

Present value of cash inflows at a 8% discount rate

697,217

655,640

499,270

386,488

Net present value
$
77,217

$
145,640

$
79,270

$
76,488

Life of the project

6 years

12 years

6 years

3 years

Internal rate of return

12
%

13
%

14
%

21
%

Because the company’s required rate of return is 8%, a 8%
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.