Answered: Life of the Internal Net Present Value…

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Question

Preference Ranking of Investment Projects

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.

Required:

1. Compute the project profitability index for each project.

2. In order of preference, rank the four projects in terms of:

a. Net present value.

b. Project profitability index.

c. Internal rate of return.

3. Which ranking do you prefer? Why?

Life of
the
Internal
Net
Present
Value
Rate of
Investment
Required
Project
(years)
Project
Return
$160,000
$135,000
$100,000
$175,000
$44,323
$42,000
$35,035
$38,136
18%
.....
12
16%
20%
....
3
22%

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