A company is considering two mutually exclusive projects, the companys required return is 8 percent and they do not have any capital constraints. Based on the profitability index, what is your recommendation concerning these projects?

Project A Project B

Year Cash Flow Year Cash Flow

0 -$38,500 0 -$42,000

1 $20,000 1 $10,000

2 $24,000 2 $40,000

		Neither project is acceptable.
		You should accept both projects since both of their PIs are greater than 1.
		You should accept project A since it has the higher PI.
		You should accept both projects since both of their PIs are positive.
		You should only accept project B since it has the largest PI and the PI exceeds 1.