MMW 11 Lecture Notes - Lecture 7: Schistosomiasis, Trepanning, Geomancy
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8 Dec 2018
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The management of Revco Products is exploring four differentinvestment opportunities. Information on the four projects understudy follows: |
Project Number |
1 | 2 | 3 | 4 | |||||||||
Investment required | $ | (400,000 | ) | $ | (350,000 | ) | $ | (250,000 | ) | $ | (370,000 | ) |
Present value ofcash inflows at a 10% discount rate | 530,740 | 442,440 | 303,280 | 443,800 | ||||||||
Net presentvalue | $ | 130,740 | $ | 92,440 | $ | 53,280 | $ | 73,800 | ||||
Life of theproject | 5 years | 10 years | 5 years | 4 years | ||||||||
Internal rate ofreturn | 22% | 16% | 18% | 19% | ||||||||
Because the companyâs required rate of return is 10%, a 10%discount rate has been used in the present value computationsabove. Limited funds are available for investment, so the companycanât accept all of the available projects. |
Required: | |||
1. | Compute the project profitability index for each investmentproject
|