Question

The following table contains information about four projects in which Hughes Corporation has the opportunity to invest This information is based on estimates that different managers have prepared about their potential project (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? Requirement 1. Rank the projects in order of preference

Answer 1

To rank the projects in order of preference, we will analyze each project using different investment evaluation methods. Here are the rankings based on the given requirements:

a. Net Present Value (NPV):

The higher the NPV, the better the project.

Ranking based on NPV (from highest to lowest):

1- Project D

2- Project A

3- Project C

4- Project B

____________________________

b. Project Profitability Index (PPI):

The higher the PPI, the better the project.

Ranking based on PPI (from highest to lowest):

1- Project D

2- Project A

3- Project C

4- Project B

___________________________

c. Internal Rate of Return (IRR):

The higher the IRR, the better the project.

Ranking based on IRR (from highest to lowest):

1- Project D

2- Project A

3- Project C

4- Project B

____________________________

d. Payback Period:

The shorter the payback period, the better the project.

Ranking based on Payback Period (from shortest to longest):

1- Project D

2- Project A

3- Project C

4- Project B

____________________________

e. Accounting Rate of Return (ARR):

The higher the ARR, the better the project.

Ranking based on ARR (from highest to lowest):

1- Project D

2- Project A

3- Project C

4- Project B

___________________________

Requirement 2. Which method(s) do you think is best for evaluating capital investment projects in general? Why?

The particular requirements and characteristics of the firm will determine the appropriate approach for generally analyzing capital investment projects. The Net Present Value (NPV) method, however, is frequently regarded as one of the most effective strategies. By taking into account the present value of future cash flows and the time value of money, net present value (NPV) calculates the profitability of a project. It takes into account all cash flows during the course of the project and gives a clear indicator of the value of the project to the company. Additionally, NPV makes it simple to compare and rank projects. When making investment decisions, it's crucial to take into account additional elements including risk, strategic fit, and other qualitative considerations.