The Weston Company is analyzing projects A, B, and C as possible investment opportunities. Each of these projects has a useful life of five years. The following information has been obtained:
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Project A
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Project B
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Project C
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Initial investment required
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$500,000
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$480,000
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$630,000
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Present value of future cash inflows
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$675,000
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$520,000
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$690,000
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Internal rate of return
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18%
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14%
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16%
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1. Which of the following statements is correct?
A) Project B is preferred over Project C according to the project profitability index.
B) Project B is preferred over Project A according to the internal rate of return.
C) Project C is preferred over Project A according to the project profitability index.
D) Project A is preferred over Project C according to a net present value ranking.
2. Which project has the highest ranking according to the net present value and the project profitability index criteria?
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Net Present Value
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Profitability Index
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A)
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Project B
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Project B
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B)
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Project A
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Project A
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C)
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Project B
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Project A
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D)
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Project C
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Project C
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