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 $850,000 $532,160 9 24% B $670,000 $361,380 14 19% C $550,000 $233,224 9 20% D $750,000 $235,660 5 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:
1.	Compute the project profitability index for each project. (Round your answers to 2 decimal places.)

        

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

     

Answer 1

Answer-1)-

Project	Project Profitablity Index
A	0.63
B	0.54
C	0.42
D	0.31

Explanation-

Calulation of Project Profitablity Index
Particulars	Project
	A	B	C	D
Net Present Value $ (A)	532160	361380	233224	235660
Investment required $ (B)	850000	670000	550000	750000
Profitablity Index C=A/B	0.63	0.54	0.42	0.31

2)-

Statment of Ranking
Particulars	Project Number
	A	B	C	D
Net Present Value $	398189	297159	188526	183344
Ranking	1	2	3	4
Profitablity Index	0.63	0.54	0.42	0.31
Ranking	1	2	3	4
Internal rate of return	24%	19%	20%	22%
Ranking	1	4	3	2