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: Project
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 | Internal Rate Of Return (Percent) |
A | $160,000 | $44,323 | 7 | 18% |
B | $135,000 | $42,000 | 12 | 16% |
C | $100,000 | $35,035 | 7 | 20% |
D | $175,000 | $38,136 | 3 | 22% |
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: In this problem you are asked to rank the projects based on net present value (NPV), then internal rate of return (IRR), then profitability index (PI). Complete the following questions. Clearly identify each one in your response.
1. Describe each method briefly, in one paragraph each. Include how each method is computed and indicate any assumptions made by that method. Start with NPV, then IRR, then PI.
2. What is your evaluation of each method? Start with NPV, then IRR, then PI.
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