Oxford Company has limited funds available for investment and must ration the funds among four competing projects. Selected information on the four projects follows: Project Investment Required Net Present Value Life of the Project (years) Internal Rate of Return (percent)
A $960,000, $479,750 9, 22%
B $725,000 $269,540 14 16%
C $660,000 $451,487 9 25%
D $860,000 $201,480 5 19%
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: 1. Compute the project profitability index for each project. (Round your answers to 2 decimal places.)
2. In order of preference, rank the four projects in terms of net present value, project profitability index and internal rate of return.
| Project | Initial Investment (A) | NPV(B) | Present Value of cash Flows C | PI (C/A) | ||
| A | $ 960,000.00 | $ 479,750.00 | $ 1,439,750.00 | 1.50 | ||
| B | $ 725,000.00 | $ 269,540.00 | $ 994,540.00 | 1.37 | ||
| C | $ 660,000.00 | $ 451,487.00 | $ 1,111,487.00 | 1.68 | ||
| D | $ 860,000.00 | $ 201,480.00 | $ 1,061,480.00 | 1.23 | ||
| NPV | PI | IRR | ||||
| First | A | 479750 | C | 1.68 | C | 25% |
| Second | C | 451487 | A | 1.50 | A | 22% |
| Third | B | 269540 | B | 1.37 | D | 19% |
| Fourth | D | 201480 | D | 1.23 | B | 16% |
Get Answers For Free
Most questions answered within 1 hours.