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	Investment Required	Net Present Value	Life of the Project (years)	Internal Rate of Return (percent)
A	$990,000	$229,400	6	18%
B	$740,000	$104,350	11	13%
C	$690,000	$181,000	6	19%
D	$890,000	$143,420	4	17%

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.

Profit Profitability Index

A

B

C

D

n order of preference, rank the four projects in terms of net present value, project profitability index and internal rate of return.

	net present value	project profitablitiy index	internal rate of return
first preference
second preference
third preference
fourth preference

Answer 1

Profitabily Index
			A	B	C	D
Net Present Value			229400	104350	181000	143420
Add: Initial Investment			990000	740000	690000	890000
Present value of inflows			1129400	844350	871000	1033420
Divide: Initial Investment			990000	740000	690000	890000
Profitability Index			1.141	1.141	1.262	1.161
Preference Chart
			NPV	Profitability Index		IRR
First preference			A	C		C
Second Preference			C	D		A
Third Preference			D	B		D
Fourth Preference			B	A		B