ent and must ration the funds among four competing Oxford Company has limited fu
ID: 2438236 • Letter: E
Question
ent and must ration the funds among four competing Oxford Company has limited funds available for projects. Selected information on the four projects Net Present the Project Investment $840,000 $865,000 $540,000 $740,000 $387,050 $293,900 $180,225 $170,300 13 The net present values above have been computed using a 10% disco assistance in determining which project to accept first, second, and so t e company wants your Required: 1. Compute the project profitability index for each project (Round your 2 decimal places.) Index 2 In order of preference, rank the four projects in terms of net present value, project profitabitity index and internal rate of return ProjectInternal Rate Net PresentProfitabilityof Return Index First orsterence Secono preferenceExplanation / Answer
(1)
Project A
Net present value = Present value of cash inflows - Investment required
387,050 = Present value of cash inflows - 840,000
Hence, present value of cash inflows = 387,050 + 840,000
= $1,227,050
Profitability index = Present value of cash inflows/Investment required
= 1,227,050/840,000
= 1.4608
Project B
Net present value = Present value of cash inflows - Investment required
293,900 = Present value of cash inflows - 665,000
Hence, present value of cash inflows = 293,900 + 665,000
= $958,900
Profitability index = Present value of cash inflows/Investment required
= 958,900/665,000
= 1.4420
Project C
Net present value = Present value of cash inflows - Investment required
180,225 = Present value of cash inflows - 540,000
Hence, present value of cash inflows = 180,225 + 540,000
= $720,225
Profitability index = Present value of cash inflows/Investment required
= 720,225/540,000
= 1.3337
Project D
Net present value = Present value of cash inflows - Investment required
179,300 = Present value of cash inflows - 740,000
Hence, present value of cash inflows = 179,300 + 740,000
= $919,300
Profitability index = Present value of cash inflows/Investment required
= 919,300/740,000
= 1.2423
(2)
Internal rate of return could not be completed as on the question posted by you, there is a flash on the Internal rate of return column and hence it is not visible. If you provide me the details of Internal rate of return, I will rank them.
Kindly give a positive rating if you are satisfied with the answer. Feel free to ask if you have any doubt. Thanks.
Project Profitability Index A 1.4608 B 1.4420 C 1.3337 D 1.2423Related Questions
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