Which project should the firm accept

Reference no: EM133357666

You are offered an annuity that will pay $18,000 per year for 10 years. The appropriate discount rate is 8%. What is the annuity worth to you today if the first payment will be made two years from now?

Question 1

The ABC Corporation is trying to choose between the following two mutually exclusive design projects:

Year	Cash flow (I)	Cash flow (II)
0	-$32,000	-$10,000
1	24,000	8,000
2	24,000	8,000
3	24,000	8,000

a) If the required return is 10% and ABC Corporation applies the Profitability Index (PI) decision rule, which project should the firm accept?
b) If the required return is 10% and ABC Corporation applies the Net Present Value (NPV) decision rule, which project should it take?

Reference no: EM133357666

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