Oxford Company has limited funds available for investment and must ration the fu

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: Life ofInternal Net Present Value $532,160 $361,380 $233,224 $235,660 Rate Investment equired $850,000 670,000 $550,000 $750,000 Project of Return ro 24% 14 19% 2096 22% 9 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.) Project Profitability 2. In order of preference, rank the four projects in terms of net present value, project profitability index and internal rate of return. Project Internal Rate Net Present Profitability of Return Index Value First preference Second preference Third preference Fourth preference

Explanation / Answer

1.project profitability index = net present value / investment required

2.ranking:

NPV is ranked based on absolute amount.i.e the higher the NPV the better the rank.

The higher the profitablility index the better the rank.

The higher the IRR the better the rank.

project profitability index A (532,160 / 850,000) 0.63 B (361,380/670,000) 0.54 C(233,224/550,000) 0.42 D(235,660/750,000) 0.31

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