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...........
|
$120,000
|
$30,000
|
9
|
|
B...........
|
$215,000
|
$43,000
|
15
|
|
C...........
|
$162,000
|
$45,360
|
14
|
|
D...........
|
$130,000
|
$39,000
|
6
|
The company wants your assistance in ranking the desirability of the projects.
Required:
1. Compute the project profitability index for each project.
2. In order of preference, rank the four projects in terms of:
a. Net present value.
b. Project profitability index.
3. Which ranking do you prefer? Why?