Oxford Company has limited funds available for investment and must ration the fu
ID: 2529161 • 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.
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.Compute the project profitability index for each project.
Profitability index = Present Value of Inflow / Initial Investment
Project A = (940000+520000) / 940000 = 1.55
Project B = (715000+273030) / 715000 = 1.38
Project C = (640000+294656) / 640000 = 1.46
Project D = (840000+129930) / 840000 = 1.15
2.In order of preference, rank the four projects in terms of net present value, project profitability index and internal rate of return.
NPV
Rank
Profitability Index
Rank
IRR
Rank
Project A
520400
1
1.55
1
25%
1
Project B
273030
3
1.38
3
17%
4
Project C
294656
2
1.46
2
23%
2
Project D
129930
4
1.15
4
19%
3
NPV
Rank
Profitability Index
Rank
IRR
Rank
Project A
520400
1
1.55
1
25%
1
Project B
273030
3
1.38
3
17%
4
Project C
294656
2
1.46
2
23%
2
Project D
129930
4
1.15
4
19%
3
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