Problem 8-25 Profitability Index versus NPV (LO3)

Consider projects A and B with the following cash flows:

		C0					C1					C2					C3
A			$	29			+	$	18			+	$	18			+	$	18
B				54			+		29			+		29			+		29

a-1. What is the NPV of each project if the discount rate is 13%? (Do not round intermediate calculations. Round your answers to 2 decimal places.)

a-2. Which project has the higher NPV?

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

b-2. Which project has the higher profitability index?

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

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

		Project A	Project B
a-1.	NPV of each project if the discount rate is 13%
a-2.	Which project has the higher NPV?
b-1.	Profitability index of each project
b-2.	Which project has the higher profitability index?
c.	Which project is most attractive to a firm that can raise an unlimited amount of funds to pay for its investment projects?
d.	Which project is most attractive to a firm that is limited in the funds it can raise?