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 Investmentrequired $ (270,000) $ (450,000) S (360,000) $ (480,000) Present value of cash inflows336, 140 522,970 433, 400 567, 270 Net present value $ 66, 140 $ 72,970 $ 73,400 $ 87,270 Lifeof the project 6 years 3 years 12 years 6 years Internal rate of return 18% 19% 14% 16% Thenet present values above have been computed using a 10% discount rate. Limited funds areavailable for investment, so the company can't accept all of the available projects. Required:Compute the profitability index for each investment project. Rank the four projects according topreference, in terms of net present value, profitability index, and internal rate of return.

Computation of profitability index for each investment project.Profitability index = Present value…

Answered: Compute the profitability index for…

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

Managerial Accounting

15th Edition

ISBN:9781337912020

Author:Carl Warren, Ph.d. Cma William B. Tayler

Publisher:Carl Warren, Ph.d. Cma William B. Tayler

Chapter12: Capital Investment Analysis

Section: Chapter Questions

Problem 2PA

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There are two projects under consideration by the Rainbow factory. Each of the projects will require an initial investment of $35,000 and is expected to generate the following cash flows: Use the information from the previous exercise to calculate the internal rate of return on both projects and make a recommendation on which one to accept. For further instructions on internal rate of return in Excel, see Appendix C.
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 $ (270,000) $ (450,000) $ (360,000) $ (480,000) Present value of cash inflows 336,140 522,970 433,400 567,270 Net present value $ 66,140 $ 72,970 $ 73,400 $ 87,270 Life of the project 6 years 3 years 12 years 6 years Internal rate of return 18% 19% 14% 16% The net present values above have been computed using a 10% discount rate. Limited funds are available for investment, so the company can’t accept all of the available projects. Required: I need help finding the profitability index for each investment project. Rank the four projects according to preference, in terms of net present value, profitability index, and internal rate of return.
The management of Riker Inc. is exploring five different investment opportunities. Information on the five projects under study follows: Project Number 1 2 3 4 5 Investment required $ (310,000 ) $ (270,000 ) $ (390,000 ) $ (480,000 ) $ (330,000 ) Present value of cash inflows at a 10%discount rate 394,630 340,260 482,970 570,930 278,850 Net present value $ 84,630 $ 70,260 $ (92,970 ) $ 90,930 $ 51,150 Life of the project 6 years 3 years 5 years 12 years 6 years The company’s required rate of return is 10%; thus, a 10% discount rate has been used in the preceding present value computations. Limited funds are available for investment, and so the company cannot accept all of the available projects. Required: 1. Compute the profitability index for each investment project. (Round your answers to 2 decimal places.) 2. Rank the five projects according to…
The management of Revco Products is exploring four different investment opportunities. Information onthe four projects under study follows:Project Number1 2 3 4Investment required ....................... $(270,000) $(450,000) $(360,000) $(480,000)Present value of cashinfl ows at a 10%discount rate .............................. 336,140 522,970 433,400 567,270Net present value .......................... $ 66,140 $ 72,970 $ 73,400 $ 87,270Life of the project ........................... 6 years 3 years 12 years 6 yearsInternal rate of return ..................... 18% 19% 14% 16%The company’s required rate of return is 10%; thus, a 10% discount rate has been used in the present valuecomputations above. Limited funds are available for investment, so the company can’t accept all of theavailable projects.Required:1. Compute the project profitability index for each investment project.2. Rank the four projects according to preference, in terms of:a. Net present valueb. Project profitability…
The capital investment committee of Iguana Inc. is considering two capital investments. The estimated operating income and net cash flows from each investment are as follows: Year Robotic AssemblerOperating Income Robotic AssemblerNet Cash Flow WarehouseOperating Income WarehouseNet Cash Flow 1 $35,000 $65,000 $21,000 $51,000 2 25,000 55,000 21,000 51,000 3 20,000 50,000 21,000 51,000 4 15,000 45,000 21,000 51,000 5 10,000 40,000 21,000 51,000 Total $105,000 $255,000 $105,000 $255,000 Each project requires an investment of $150,000. Straight-line depreciation will be used, and no residual value is expected. The committee has selected a rate of 12% for purposes of the net present value analysis. Year 6% 10% 12% 15% 20% 1 0.943 0.909 0.893 0.870 0.833 2 0.890 0.826 0.797 0.756 0.694 3 0.840 0.751 0.712 0.658 0.579 4 0.792 0.683 0.636 0.572 0.482 5 0.747 0.621 0.567 0.497 0.402 6 0.705 0.564 0.507 0.432 0.335 7 0.665 0.513 0.452 0.376 0.279 8 0.627…
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(A) Sunny Company is investigating four different opportunities. Information on the four projects under study is as follows: Project 1 2 34 Investment required $480,000 $360,000 $270,000 $450,000 Present value of cash inflows 567,270 433,400 336, 140 522,970 Net present value $87,270 $73, 400 $66, 140 $72,970 Life of project 6 years 12 years 6 years 3 years The company's required rate of return is 10%; therefore a 10% discount rate has been used in the present value computations above. Limited funds are available for investment, so the company cannot accept all of the available projects. Required: a) Compute the profitability index for each investment project. b) Rank the four projects according to preference, in terms of: (i) Net present value, (ii) Profitability index. (B) Snow Company is considering the purchase of a new piece of equipment for laying sod. Relevant information concerning the equipment follows: Cost of Equipment $ 180,000.00 Annual Cost saving from new equipement $37,…
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