Question

The Sloan Corporation is trying to choose between the following two mutually exclusive design projects:   ...

The Sloan Corporation is trying to choose between the following two mutually exclusive design projects:

  

Year Cash Flow
(I)
Cash Flow
(II)
0 –$ 54,000 –$ 19,000
1 25,000 10,200
2 25,000 10,200
3 25,000 10,200

   

a-1

If the required return is 11 percent, what is the profitability index for both projects? (Do not round intermediate calculations. 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 Il

  

b-1

What is the NPV for both projects? (Negative amounts 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

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