(Answered) Assignmentnpv net present value versus pi profitability

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NPV (Net Present Value) versus PI (Profitability Index)

Projects	C₀	C₁	C₂	PI	NPV
A	-$1000	$1000	$500	1.32	$322
B	-500	500	400	1.57	285

The appropriate discount rate for the projects is 10%. Global Investments chose to undertake project A. At a luncheon for shareholders, the manager of a pension fund that owns a substantial amount of the firm's stock asks you why the firm chose project A instead of project B when project B has a higher PI.

How would you, the CFO, justify your firm's action? Are there any circumstances under which Global Investments should choose project B?

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