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.

     

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 =(Initial investment +NPV)/initial investment

2)

**All projects are ranked in terms of highest value. (Highest NPV First and then so on)

Project Calculation PI A (860000+473750)/ 860000 = 1333750/860000 1.55 B (675000+354930)/ 675000   = 1029930/675000 1.53 C (560000+170895)/560000   = 730895/560000 1.31 D (760000+160190) / 760000   = 920190 / 760000 1.21

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