Firm is considering two mutually exclusive-required project

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Reference no: EM13942970

Suppose your firm is considering two mutually exclusive, required projects with the cash flows shown below. The required rate of return on projects of both of their risk class is 8 percent, and that the maximum allowable payback and discounted payback statistic for the projects are 2 and 3 years, respectively.

TIME: 0 1 2 3

Project A CF: $ - 10,000 $ 10,000 $ 30,000 $ 3,000

Project B CF: $ - 30,000 $ 10,000 $ 20,000 $ 50,000

Use the Profitability Index (PI) decision rule to evaluate these projects; what is the PI for each project, and which one(s) should it be accepted or rejected?

Reference no: EM13942970

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