Question

# Jill Harrington, a manager at Jennings Company, is considering several potential capital investment projects. Data on...

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

1. Payback period for each project and rank order them based on this criterion is as shown below:

 Payback Period Rank Project X 40,000/25,000 1.60 1 Project Y 20,000/10,000 2.00 3 Project Z 50,000/25,400 1.97 2

2. NPV of each project and rank order them based on this criterion is

 NPV Rank Project X 45,000-40,000 5000 3 Project Y 33,000-20,000 13000 2 Project Z 70,000-50,000 20000 1

3. profitability index of each project and rank order them based on this criterion is

 PI Rank Project X 40,000/5,000 8.00 1 Project Y 20,000/13,000 1.54 3 Project Z 50,000/20,000 2.50 2

Jill would recommend payback ranking