Jill Harrington, a manager at Jennings Company, is considering
several potential capital investment projects. Data on these
projects follow:
|
Project X |
Project Y |
Project Z |
Initial
investment |
|
$40,000 |
|
$20,000 |
|
$50,000 |
Annual cash
inflows |
|
25,000 |
|
10,000 |
|
25,400 |
PV of cash
inflows |
|
45,000 |
|
33,000 |
|
70,000 |
|
Required:
1. Compute the payback period for each project and rank
order them based on this criterion. (Round your answers to
2 decimal places.)
|
|
|
Payback Period |
Rank |
Project
X |
|
|
Project
Y |
|
|
Project Z |
|
|
|
2. Compute the NPV of each project and rank
order them based on this criterion.
|
|
|
NPV |
Rank |
Project
X |
|
|
Project
Y |
|
|
Project Z |
|
|
|
3. Compute the profitability index of each
project and rank order them based on this criterion. (Round
your answers to 2 decimal places.)
|
|
|
PI |
Rank |
Project
X |
|
|
Project
Y |
|
|
Project Z |
|
|
|
If Jennings has limited funds to invest, which ranking should
Jill recommend?
|
NPV Ranking |
|
Profitability Index Ranking |
|
Payback Ranking |