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NEED ASAP IN 10 MIN PLEASE!!!! THANK YOU!!!!The following are the cash flows of two projects: 20 1 Year Project A Project B 0 -$360 -$360 190 260 2. 190 260 3 190 260 4

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Answer #1

Solution :-

Profitability Index = Present Value of Cash Inflows / Initial Investment

Project A

Present Value of Cash Inflows = $190 * PVAF ( 12% , 4 ) = $190 * 3.037 = $577.09

Profitability Index = $577.09 / $360 = 1.603 times

Project B

Present Value of Cash Inflows = $260 * PVAF ( 12% , 3 ) = $260 * 2.402 = $624.48

Profitability Index = $624.48 / $360 = 1.734 times

Yes the Project with the highest PI index has the higher NPV but only in case if the initial investment of both projects are same .

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