Question: Consider the following two projects : Project Year 0 Cash Flow Year 1 Cash Flow Year 2 Cash Flow Year 3 Cash Flow Year 4

Consider the following two projects :

Project

Year 0

Cash Flow

Year 1

Cash Flow

Year 2

Cash Flow

Year 3

Cash Flow

Year 4

Cash Flow

 Discount Rate
A -100 40 50 60 N/A .15
B -73 30 30 30 30 .15

a. What is the profitability index for Project A?

b. What is the profitability index for Project B?

c. What do the results tell you about the projects?

d. Which project should you accept?

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