Oxford Company has limited funds available for investment and must ration the funds among four competing projects. Selected information on the four projects follows:
Dividend Policy
A dividend is a part of the profit paid to the shareholder in an organization. The management of the organization has the right to decide the policy for giving a dividend from the earnings to the shareholder. However, an organization is not in the obligation to declare a dividend for the investor. Dividend policy differs from organization to organization. As the management has the only authority to decide dividend rate, dividend amount, and time of dividend payout by considering all other elements that create an impact on the payment of a dividend.
Stocks And Dividends
Stock or equities are generally sold and bought in the Stock Exchange or which is popularly known as the stock market. Stocks are issued in the Stock Exchange for the sole purpose of raising funds for the Corporation or the company itself. Now since an individual has purchased a portion of the Corporation or company, he or she may claim to be a part of the earnings or profit of the company.
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 |
Present Value |
Life of the Project (years) |
Rate of Return |
|||
| A | $ | 870,000 | $ | 576,770 | 9 | 25 | % |
| B | $ | 755,000 | $ | 308,594 | 14 | 17 | % |
| C | $ | 720,000 | $ | 442,949 | 9 | 24 | % |
| D | $ | 920,000 | $ | 145,122 | 5 | 16 | % |
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 net present value, project profitability index and internal rate of return.
Compute the project profitability index for each project. (Round your answers to 2 decimal places.)
|
|
|
Trending now
This is a popular solution!
Step by step
Solved in 2 steps
