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Problem:

Suppose your firm is considering two mutually exclusive, required projects with thecash 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

Requirement:

Question: 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?

Note: Please show how to work it out.

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Basic Finance, Finance

Category:- Basic Finance
Reference No.:- M91163067

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