Question: 1. NPV (Net Present Value) versus PI (Profitability Index) Consider the following two mutually exclusive projects available to Global Investments, Inc.: Projects C 0 C

1. NPV (Net Present Value) versus PI (Profitability Index)

Consider the following two mutually exclusive projects available to Global Investments, Inc.:

Projects	C₀	C₁	C₂	PI	NPV
A	-$1000	$1000	$500	1.32	$322
B	-500	500	400	1.57	285

The appropriate discount rate for the projects is 10%. 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 firms stock asks you why the firm chose project A instead of project B when project B has a higher PI.

How would you, the CFO, justify your firms action? Are there any circumstances under which Global Investments should choose project B

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