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o. Calculating Profitability Index Suppose the following two independent investment opportine available to Greene, Inc. The appropriate discount rate is 10 percent discount rate is 10 percent. YEAR PROJECT ALPHA PROJECT BETA -$2,100 900 1,200 1,100 -$3,400 1,700 2,900 1,400 a. Compute the profitability indexes for each of the two projects. b. Which project(s) should the company accept based on the profitability index rule? othsa required return of R, and pays C anmuat

please show all work

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Answer #1

We first compute the present value of cash inflows

Profitability Index = PV of inflow/ Initial investment

Year Alpha Beta
0 -2100 -3400
1 900 1700
2 1200 2900
3 1100 1400
PV ofcash inflows $2,636.36 $4,993.99
PI 1.26 1.47

Project Beta should be accepted since it has higher PI

WORKINGS

AutoSave Book1 - Excel 《Product Activation Failed) Sign in File Insert Page Layout Formulas Data Review View Help Tell me what you want to do 수 Share Home Calibri General 田FF Conditional Fornat as Cell Insert Delete Fornat FormattingTable Styles- 、. Sort & Find & Paste . 녀 . 의 _ . 로三들經垣臣 Merge & Center-5 . % , : Filter-Select- Clipboard Alignment Number Styles Cells Editing B1 Year Alpha 2100 900 1200 1100 Year 0 Beta 3400 1700 2900 1400 PV ofcash inflows Pl -NPV(10%,C3:C5) =C71-C2 -NPV( 10%,D3DS) 071-D2 10 12 13 14 16 17 Sheet1 Ready + 100 cENG 1:33 AM

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