Question

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

Answer 1