Oxford Company has limited funds available for investment and must ration the fu
ID: 2436445 • Letter: O
Question
Oxford Company has limited funds available for investment and must ration the funds among five competing projects. Selected information on the five projects follows:
The net present values above have been computed using a 10% discount rate. The company wants your assistance in determining which project to accept first, which to accept second, and so on.
Oxford Company has limited funds available for investment and must ration the funds among five competing projects. Selected information on the five projects follows:
Explanation / Answer
Answer
Profitability Index = (Initial Investment + NPV) / Initial Investment
Project
Initial Investment
Net Present Value
Sum
Profitability Index
[A]
[B]
[C = A+B]
[D = C/A]
A
$ 480,000.00
$ 132,969.00
$ 612,969.00
1.28
B
$ 405,000.00
$ 126,000.00
$ 531,000.00
1.31
C
$ 300,000.00
$ 105,105.00
$ 405,105.00
1.35
D
$ 525,000.00
$ 114,408.00
$ 639,408.00
1.22
E
$ 450,000.00
$ (26,088.00)
$ 423,912.00
0.94
Projects
NPV
Ranking as per NPV
Profitability Index
Ranking as per PI
A
$ 132,969.00
1
1.28
3
B
$ 126,000.00
2
1.31
2
C
$ 105,105.00
4
1.35
1
D
$ 114,408.00
3
1.22
4
E
$ (26,088.00)
5
0.94
5
Project
Initial Investment
Net Present Value
Sum
Profitability Index
[A]
[B]
[C = A+B]
[D = C/A]
A
$ 480,000.00
$ 132,969.00
$ 612,969.00
1.28
B
$ 405,000.00
$ 126,000.00
$ 531,000.00
1.31
C
$ 300,000.00
$ 105,105.00
$ 405,105.00
1.35
D
$ 525,000.00
$ 114,408.00
$ 639,408.00
1.22
E
$ 450,000.00
$ (26,088.00)
$ 423,912.00
0.94
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