Problem 8-22 Profitability Index versus NPV (LO3)

Consider projects A and B with the following cash flows:

		C0				C1				C2				C3
A			$	37		+	$	21		+	$	21		+	$	21
B				62		+		31		+		31		+		31

a-1.	What is the NPV of each project if the discount rate is 12%? (Do not round intermediate calculations. Round your answers to 2 decimal places.)

Project	NPV
A	$
B	$

a-2.

Which project has the higher NPV?

	Project A
	Project B

b-1.	What is the profitability index of each project? (Do not round intermediate calculations. Round your answers to 2 decimal places.)

Project	Profitability index
A
B

b-2.

Which project has the higher profitability index?

	Project A
	Project B

c-1.

Which project is most attractive to a firm that can raise an unlimited amount of funds to pay for its investment projects?

	Project A
	Project B

c-2.

Which project is most attractive to a firm that is limited in the funds it can raise?

	Project A
	Project B
	Both