Rank the projects by their pis

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Reference no: EM131328639

Evaluate the following three projects, using the profitability index. Assume a cost of capital of 15 percent.

	Project
Cash Flows	Liquidate	Recondition	Replace
Initial Cash Outflow	-$ 100,000	-$ 500,000	-$ 1,000,000
Year 1 Cash inflow	50,000	100,000	500,000
Year 2 Cash inflow	60,000	200,000	500,000
Year 3 Cash inflow	75,000	250,000	500,000

a. Rank these projects by their PIs.

b. If the projects are independent, which would you accept according to the PI criterion?

c. If these projects are mutually exclusive, which would you accept according to the PI criterion

d. Apply the NPV criterion to the projects, rank them according to their NPVs, and indicate which you would accept if they are independent and mutually exclusive.

e. Compare and contrast your answer from part (c) with your answer to part (d) for the mutually exclusive case. Explain this result.

Reference no: EM131328639

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