Oxford Company has limited funds available for investment and must ration the fu

Question

Oxford Company has limited funds available for investment and must ration the funds among four competing projects. Selected information on the four 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, second, and so forth.

In order of preference, rank the four projects in terms of net present value, project profitability index and internal rate of return.

Net Present Value Project Profitability Index Internal Rate of Return

First preference

Second preference

Third preference

Fourth preference

Oxford Company has limited funds available for investment and must ration the funds among four competing projects. Selected information on the four projects follows:

Explanation / Answer

1. Profitability Index NPV + Investment present value of Cash inflow Profitability Index = Present value/Investmnet Project A          269,640            850,000          1,119,640                1.32 Project B          277,100            745,000          1,022,100                1.37 Project C          278,468            700,000              978,468                1.40 Project D          169,410            900,000          1,069,410                1.19 2 Rank of Project Interenal Rate of Return Internal Return = Investment X rate of return Net Present value Profitability Index Project A 19%            161,500              269,640                1.32 Project B 17%            126,650              277,100                1.37 Project C 21%            147,000              278,468                1.40 Project D 20%            180,000              169,410                1.19 Total 19%            615,150              994,618                1.31

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