Saturday 20 July 2019

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

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

ProjectInvestment
Required
Net
Present
Value
Life of
the
Project
(years)
Internal
Rate
of Return
A$860,000$481,052824%
B$675,000$341,9801319%
C$560,000$172,682818%
D$760,000$165,457322%

 

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.


1.
The project profitability index is computed as follows:

ProjectNet Present
Value
(a)
 Investment
Required
(b)
 Project
Profitability
Index
(a) ÷ (b)
A$481,052 $860,000 0.56
B$341,980 $675,000 0.51
C$172,682 $560,000 0.31
D$165,457 $760,000 0.22

Thanks

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