Explore BrainMass

Explore BrainMass

    Net Present Value and Project Probability

    This content was COPIED from BrainMass.com - View the original, and get the already-completed solution here!

    17. Oxford Company has limited funds available for investment and must ration the funds among five competing projects. Selected information on the five projects follows:

    Project
    Investment Required
    Net Present Value
    Life of the Project (years) 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%
    E $150,000 $(8,696) 6 8%

    The net present values have been computed using a 10% discount rate. The company wants your assistance in determining which project to accept first, second, and so forth.

    (A) Compute the project probability index for each project.

    (B) In order of preference, rank the five projects in terms of :
    a. Net Present Value
    b. Project Probability Index
    c. Internal Rate of Return

    (C) Which ranking do you prefer? Why?

    © BrainMass Inc. brainmass.com June 3, 2020, 8:56 pm ad1c9bdddf
    https://brainmass.com/business/capital-budgeting/net-present-value-and-project-probability-158796

    Attachments

    Solution Summary

    This solution shows step-by-step calculations of the net present value, project probability index and it ranks the five projects in terms of NPV, PI, and IRR with justifications of preference.

    $2.19

    ADVERTISEMENT