Net Present Value versus Profitability Index Consider the following two mutually exc...
Net Present Value versus Profitability Index Consider the following two mutually exclusive projects available to Global Investments, Inc.:
The appropriate discount rate for the projects is 10 percent. 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 profitability index.
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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