8-4 (2) The management of Revco Products is exploring four different investment opportunities. In…

8-4 (2)

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 $ (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 %

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.)

Project Profitability
Index
1
2
3
4

8-4 (2) The management of Revco Products is exploring four different investment opportunities. In…