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 of the Net Internal Investment Present Proiect Rate Project Required Value (years) of Return $840,000 $398,189 8 $665,000 $297,159 1 $540,000 $188,526 8 $740,000 $183,344 22% 18% 19% 21% 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. 2. In order of preference, rank the four projects in terms of net present value, project profitability index and internal rate of return. Complete this question by entering your answers in the tabs below Required Required 2 Compute the project profitability index for each project. (Round your answers to 2 decimal places.) Pro Project Profitability Index

Explanation / Answer

1. PROFITABILITY INDEX = PV OF CASH INFLOWS / INVESTMENT REQUIRED

NPV = PV of cash inflows - Initial Investment

So, PV of cash inflows = NPV + Initial Investment

2.

Project Profitability Index A 1,238,189 / 840,000 = 1.47 B 962,159 / 665,000 = 1.44 C 728,526 / 540,000 = 1.34 D 923,344 / 740,000 = 1.24

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