Question: 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

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?

Profitability Index Ca C, -$1.000 $1,000 $500 -s00 00 400 Ca NPV $322 285 1.32 1.57

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