Oxford Company has limited funds available for investment and must ration the funds among five competing projects. Selected information on the five projects follows:

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, which to accept second, and so on.

Required:

1. Compute the profitability index for each project.

2. In order of preference, rank the five projects in terms of

a. Net present value.

b. Profitability index.

3. Which ranking do you prefer? Why?

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Life of the Project (years) Investment Required Net Present Value Project $480,000 $132,969 405,000 126,000 12 300,000 105,105 525,000 114,408 3 (26,088) 450,000 6.