Oxford Company has limited funds available for investment and must ration the fu
ID: 2402610 • 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:
Oxford Company has limited funds available for investment and must ration the funds among five competing projects. Selected information on the five projects follows Life of the Project (years) Net Investment Present Project Required Value $480,000 132,969 126,000 105,105 114 408 12 405,000 300,000 525,000 450,000 26,088) 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. Required: 1. Compute the profitability index for each project. (Round your answers to 2 decimal places.) Profitability Index Project 2. In order of preference, rank the five projects in terms of (a) net present value, (b) profitability index. Net Present Value Profitability Index First preference Second preference ird preference Fourth preference Fifth preferenceExplanation / Answer
Project
Initial Investment(A)
NPV(B)
Net Cash flow (C=A +B)
Profitability Index (C /A)
A
480,000
132,969
6,12,969
1.28
B
405,000
126,000
5,31,000
1.31
C
300,000
105,105
4,05,105
1.35
D
525,000
114,408
6,39,408
1.21
E
450,000
(26,088)
4,23,912
0.94
Preference
NPV
PI
1ST
A
C
2ND
B
B
3RD
D
A
4TH
C
D
5TH
E (Better to ignore since negative)
E (Better to ignore since less than 1)
Project
Initial Investment(A)
NPV(B)
Net Cash flow (C=A +B)
Profitability Index (C /A)
A
480,000
132,969
6,12,969
1.28
B
405,000
126,000
5,31,000
1.31
C
300,000
105,105
4,05,105
1.35
D
525,000
114,408
6,39,408
1.21
E
450,000
(26,088)
4,23,912
0.94
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