Oxford Company has limited funds available for investment and must ration the fu
ID: 2395475 • 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.
In order of preference, rank the four projects in terms of net present value, project profitability index and internal rate of return.
Project InvestmentRequired Net
Present
Value Life of
the
Project
(years) Internal
Rate
of Return
(percent) A $930,000 $332,950 6 21% B $710,000 $199,300 11 16% C $630,000 $201,805 6 20% D $830,000 $216,100 4 22%
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.
Required: PART1. Compute the project profitability index for each project. (Round your answers to 2 decimal places.) Project Profitability Index A B C D PART2.
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 preferenceExplanation / Answer
A B C D Net present value 332950 199300 201805 216100 Add: Initial Investment 930000 710000 630000 830000 Present value of inflows 1262950 909300 831805 1046100 Divide: Initial Investment 930000 710000 630000 830000 PI 1.36 1.28 1.32 1.26 Req 2: Preference NPV PI IRR First Preference A A D Second D C A Third C B C Fourth B D B
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