Oxford Company has limited funds available for investment and must ration the fu
ID: 2568192 • Letter: O
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.
1. Compute the project profitability index for each project.
2. In order of preference, rank the four projects in terms of net present value, project profitability index and internal rate of return.
Life of Internal Net the Rate Investment Present Project of Return Project RequiredValue(years) (percent) $840,000 $398,1898 $665,000 $297,159 13 $540,000 $188,526 8 $740,000 $183,344 22% 18% 19% 21% DExplanation / Answer
Req 1: PROJECT A PROJECT B PROJECT C PROJECT D Initial investment 840,000 665,000 540,000 740,000 Net present value 398,189 297,159 188,526 183,344 Profitability Index 0.474 0.447 0.349 0.248 (Net Present value / Investment) Req 2: PROJECT A PROJECT B PROJECT C PROJECT D Initial investment 840,000 665,000 540,000 740,000 Net present value 398,189 297,159 188,526 183,344 Ranking basis NPV I II III IV (Higher NPV, preferred first Profitability Index 0.474 0.447 0.349 0.248 Ranking Basis Profitability Index I II III IV (Higher Profitability Index, Preferred first) IRR 22% 18% 19% 21% Ranking basis IRR (Higher IRR preferred first) I IV III II
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