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 Internal Rate of Return Life of Net Present Value 5420,400 S244,420 5367,670 231,200 Project (years) (percent) Investment Required $860,000 $750,000 $710,000 $910,000 Project 22% 16% 22% 21% 13 4 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 Index

Explanation / Answer

profitability index = NPV ÷ INITIAL INVESTMENT

*) Project A = 420400÷860000= .4888 or 48.88 %

*)Project B = 244420÷750000= .3258 or 32.58 %

*)Project C = 367670÷710000= .5178 or 51.78 %

*)Project D = 231200÷910000= .2540 or 25.40 %

*)

company should accept PROJECT C as the first project to accept

*) PROJECT A = 2nd project

*)PROJECT B = 3rd project

*)PROJECT D = 4 th project

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