Answer Happy

The following table contains information about four projects in
which
Rhodes
Corporation has the opportunity to invest. This information is
based on estimates that different managers have prepared about
their potential project.
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​(Click the icon to view the projects​ information.)
Requirements
1.
Rank the four projects in order of preference by using the
a. net present value.
b. project profitability index.
c. internal rate of return.
d. payback period.
e. accounting rate of return.
2.
Which​ method(s) do you think is best for evaluating
capital investment projects in​ general? Why?
Question content area bottom
Part 1
Requirement 1. Rank the projects in order of preference.
(a)
Net Present
Value
1st preferred
2nd preferred
3rd preferred
4th preferred
(b)
Profitability
Index
(c)
Internal Rate
of Return
(d)
Payback
Period
(e)
Accounting Rate
of Return
Part 2
Requirement 2. Select the method that corresponds to the
appropriate explanation.
▼
Accounting rate of return (ARR)
Internal rate of return
Net present value (NPV)
Payback period
Profitability index
​: This method indicates profitability by comparing the present
value of the​ investment's net cash inflows with the cost of
the investment​ (already stated at its present​ value).
This method is superior because it incorporates the time value of
money.
▼
Accounting rate of return (ARR)
Internal rate of return
Net present value (NPV)
Payback period
Profitability index
​: This method helps to compare the NPV across alternative
investments of varying sizes.
▼
Accounting rate of return (ARR)
Internal rate of return
Net present value (NPV)
Payback period
Profitability index
​: This method also indicates profitability and incorporates the
time value of money. This method will show us the actual rate of
return being earned on the investment by equating the present value
of the net cash inflows to the​ investment's cost. In
other​ words, it is the interest rate which brings
the​ investment's NPV to zero.
Part 3
▼
Accounting rate of return (ARR)
Internal rate of return
Net present value (NPV)
Payback period
Profitability index
​: This method will show the company how quickly it recoups its
initial investment. This method will be good for screening out
those potential investments that are too risky because the period
is too long.​ However, the period will not be the sole
criterion for accepting capital investments since it does not give
the company any insight about the​ investment's
profitability.​ Additionally, it does not incorporate the time
value of money.
▼
Accounting rate of return (ARR)
Internal rate of return
Net present value (NPV)
Payback period
Profitability index
​: This method will give the company an indication of how
profitable the investment will be.​ However, since it does not
consider the time value of​ money, it is not the best
indicator of profitability. This method is the only method that
uses accrual accounting figures. Therefore it will help the company
assess the impact of investments on the financial statements. The
other methods use net cash flows.
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Data table
Project
Investment Required
Net Present Value
Life of Project
Internal Rate of Return
Profitability Index
Payback Period in Years
Accounting Rate of Return
Project A. . . .
$225,000
$35,908
5
20%
1.16
2.96
20%
Project B. . . . .
$405,000
$49,740
6
23%
1.12
3.12
15%
Project C. . . . .
$1,030,000
$151,325
3
18%
1.15
2.17
10%
Project D. . . . .
$1,530,000
$18,870
4
13%
1.01
3.00
25%