Preference ranking of investment projects

Reference no: EM13956012

Preference Ranking of Investment Projects

Since limited funds are available for investment, Yancy & Company must ration the funds among four competing projects. Selected information on the four projects follows:

Project	Investment Required	Net PresentValue	Life of theProject (years)	Internal Rate of Return
A	$800,000	$ 221,615	7	18%
B	675,000	210,000	12	16%
C	500,000	175,175	7	20%
D	700,000	152,544	3	22%

The net present values above have been computed using a 10% discount rate. The company wants your assistance in determining which project to accept first, which to accept second, and so forth. The company's investment funds are limited.

Required:

1. Compute the project profitability index for each project.

2. In order of preference, rank the four projects in terms of

a. Net present value.

b. Project profitability index.

c. IRR.

3. Which ranking do you prefer? Why?

Reference no: EM13956012

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