Oxford Company has limited funds available for investment and must ration the funds among four competing projects. Selected information on the four projects follows: Life of the Project Investment Required Present value of Project Internal Rate of Cash Inflows (years) Return A $ 200,000 $ 324,323 7 11% B $ 121,000 $ 297,000 12 16% C $ 103,000 $ 255,035 7 15% D $ 169,000 $ 333,136 3 14% The net present values should be 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 profitability index for each project. 2. In order of preference, rank the four projects in terms of net present value, 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: Life of the Project Investment Required Present value of Project Internal Rate of Cash Inflows (years) Return A $ 200,000 $ 324,323 7 11% B $ 121,000 $ 297,000 12 16% C $ 103,000 $ 255,035 7 15% D $ 169,000 $ 333,136 3 14% The net present values should be 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 profitability index for each project. 2. In order of preference, rank the four projects in terms of net present value, profitability index, and internal rate of return.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Transcribed Image Text:Oxford Company has limited funds available for investment and must ration the funds among four competing projects. Selected
information on the four projects follows:
Life of
the
Project
Investment
Required
Present
value of
Project
Internal
Rate of
Cash Inflows
(years)
Return
A
$ 200,000
$ 324,323
7
11%
B
$ 121,000
$ 297,000
12
16%
C
$ 103,000
$ 255,035
7
15%
D
$ 169,000
$ 333,136
3
14%
The net present values should be 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 profitability index for each project.
2. In order of preference, rank the four projects in terms of net present value, profitability index, and internal rate of return.
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