The Sloan Corporation is trying to choose between the following two mutually exclusive design projects: |
Year |
Cash Flow (I) |
Cash Flow (II) |
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0 | –$ | 71,000 | –$ | 17,300 | |||
1 | 33,000 | 9,350 | |||||
2 | 33,000 | 9,350 | |||||
3 | 33,000 | 9,350 | |||||
a-1 |
If the required return is 12 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 |
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Project I | ||
Project II | ||
a-2 |
If the company applies the profitability index decision rule, which project should the firm accept? |
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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? |
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