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Compute probability index of projects

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Reference no: EM132715403

Maslow's restaurant is considering two mutually exclusive projects with the following cash flow streams.

Project A Project B

Year 0 ($130,000) Year 0 ($150,000)

Year 1 $40,000 Year 1 $30,000

Year 2 $40,000 Year 2 $50, 000

Year 3 $40,000 Year 3 $25,000

Year 4 $40,000 Year 4 $55,000

a. Compute probability index of both projects

b. Using interpolation, estimate the internal rate of return for both projects, using a 15% required rate of return

c. Which project should the firm accept and why?

Reference no: EM132715403

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