Question1. 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)	Internal Rate of Return
A	$	890,000	$	459,687	8	23	%
B	$	690,000	$	227,448	13	16	%
C	$	590,000	$	279,681	8	22	%
D	$	790,000	$	159,067	4	19	%

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.

Question 2.

Derrick Iverson is a divisional manager for Holston Company. His annual pay raises are largely determined by his divisions return on investment (ROI), which has been above 20% each of the last three years. Derrick is considering a capital budgeting project that would require a $3,050,000 investment in equipment with a useful life of five years and no salvage value. Holston Companys discount rate is 16%. The project would provide net operating income each year for five years as follows:

Sales			$	2,600,000
Variable expenses				1,050,000
Contribution margin				1,550,000
Fixed expenses:
Advertising, salaries, and other fixed out-of-pocket costs	$	600,000
Depreciation		610,000
Total fixed expenses				1,210,000
Net operating income			$	340,000

Click here to view Exhibit 12B-1 and Exhibit 12B-2, to determine the appropriate discount factor(s) using tables.

Required:

1. Compute the project's net present value.

2. Compute the project's simple rate of return.

3a. Would the company want Derrick to pursue this investment opportunity?

3b. Would Derrick be inclined to pursue this investment opportunity?