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)

A $160,000 $44,323 7

B $135,000 $42,000 12

C $100,000 $35,035 7

D $175,000 $38,136 3

Internal Rate of Return (percent)

A 18%

B 16%

C 20%

D 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.

Requirement 1:

Compute the project profitability index for each project.

Project Profitability

index

A

B

C

D

Requirement 2:

In order of preference, rank the four projects in terms of Net present value, Project profitability index and Internal rate of return.

Net Present

Value Project Profitability

Index Internal Rate of Return

First preference

Second preference

Third preference

Fourth preference

Requirement 3:

Which Rank do you preferer and why ?