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Consider the following cash flows for two mutually exclusive capital investment projects. The required rate of...

Consider the following cash flows for two mutually exclusive capital investment projects. The required rate of return is 16%. Use this information for the next 3 questions. Year Project A Cash Flow Project B Cash Flow 0 ($50,000) ($20,000) 1 15,000 6,000 2 15,000 6,000 3 15,000 6,000 4 13,500 5,400 5 13,500 5,400 6 6,750 5,400 What is the profitability index of project B?

Answers:

a.1.06

b. 1.01

c.1.09

d. 1.03

e. .94

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Answer #1

Ans a. 1.06

the profitability index of project B is 1.06

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