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

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Accounting

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 $(472,000) $(356,000) $(273,000) $(448,000)

Present value of Cash inflows at a 10% discount rate

 528,640 430,760 327,600 506,240
Net present value

$56,640

$74,760

$54,600

$58,240

Life of the project 6 years 3 years 12 years 6 years
Internal rate of return 8% 7% 18% 19%

The company's required rate of return is 10%; thus, 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.

Requirement 1:

Compute the project profitability index for each investment project. (Round your answers to 2 decimal places.)

Project Profitability index
1
2
3
4
Requirement 2:

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

Net Present Value Project Profitability Index Internal Rate of Return
First preference
Second preference
Third preference
Fourth preference

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