Question

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

Year	Cash Flow (I)				Cash Flow (II)
0	–$	63,000			–$	15,500
1		28,900				7,900
2		28,900				7,900
3		28,900				7,900

a-1.	If the required return is 10 percent, what is the profitability index for both projects? (Do not round intermediate calculations and round your answers to 3 decimal places, e.g., 32.161.)

a-2.	If the company applies the profitability index decision rule, which project should the firm accept?

b-1.	What is the NPV for both projects? (A negative answer should be indicated by a minus sign. Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16.)

b-2.	If the company applies the NPV decision rule, which project should it take?

Answer 1