Question

Cori's Sausage Corporation is trying to choose between the following two mutually exclusive design projects:

Year	Cash Flow (I)				Cash Flow (II)
0	–	$	62,000		–	$	18,200
1			33,000				9,800
2			33,000				9,800
3			33,000				9,800

a-1. If the required return is 12 percent, what is the profitability index for each project? (Do not round intermediate calculations and round your answers to 3 decimal places, e.g., 32.161.)

  

	Profitability Index
Project I
Project II

  

a-2. If the company applies the profitability index decision rule, which project should the firm accept?
  

	Project I
	Project II

  
b-1. What is the NPV for each project? (A negative answer should be indicated by a minus sign. Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16.)

	NPV
Project I	$
Project II	$

b-2. If the company applies the NPV decision rule, which project should it take?
  

	Project I
	Project II

Answer 1