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Find the net present value and profitability index

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Reference no: EM132538001

Farrah Corporation is considering two projects (see below). For your analysis, assume these projects are mutually exclusive with a required rate of return of 12%.

                                                      Project 1                    Project 2

Initial investment                    $185,000                $1,100,000

Cash inflow Year 1                     $230,000                $1,450,000

Question 1: Compute the following for each project:

  1. NPV (net present value)
  2. PI (profitability index)
  3. IRR (internal rate of return)

Question 2: Which project should be selected? Why?

Reference no: EM132538001

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