Yancey Company has limited funds available for investment and must ration the funds among four competing projects. Selected information on the four projects follows:
Project Investment Net Present List of the Internal Rate of
Required Value Project (Years) Return
A $890,000 $133,570 5 16%
B $765,000 $341,100 10 20%
C $740,000 $169,840 5 19%
D $940,000 $129,410 3 18%
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.
1. Compute the project profitability index for each project.
2. In order of preference, rank the four projects in terms of net present value, project profitability index and internal rate of return.
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