Exercise 13-11 Preference Ranking of Investment Projects [L013-5] Oxford Company

Question

Exercise 13-11 Preference Ranking of Investment Projects [L013-5] Oxford Company has limited funds availlable for Investment and must ration the funds among four competing projects. Selected information on the four projects follows: Life ofInternal the Investment Present Project of Project Required Value years) Retu 258 17% 23% 22% $900,000 $596,658 $695,000 $284 070 14 $600,000 $340,735 $800,000 $259,012 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: L Compute the project profitability Index for each project. 2. In order of preference, rank the four projects in terms of net present vallue, project profitability index and internal rate of return. Complete this question by entering your answers in the tabs below Required Required Compute the project profitability index for each project. (Round your answers to 2 decimal places.) Project Profitabilit Required 2

Explanation / Answer

a) Project profitability index = Present value of cash inflow/Initial investment

Project A = (596658+900000)/900000 = 1.66

Project B = (284070+695000)/695000 = 1.41

Project C = (340735+600000)/600000 = 1.57

Project D = (259012+800000)/800000 = 1.32

b) Preference order :

Project Rank A First B Third C Second D Fourth

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