Problems with Profitability Index $[$LO$1,$ LO$7]$ Weiland Computers GmbH is trying to

choose between the following two mutually exclusive design projects:

Year Cash flow $($I$)()$ Cash flow $($II$)()$

$0-53,000-16,000$

$127,0009,100$

$227,0009,100$

$327,0009,100$

$($a$)$ If the required return is $10$ per cent and the company applies the profitability index

decision rule, which project should the firm accept?

$($b$)$ If the company applies the NPV decision rule, which project should it take?

$($c$)$ Explain why your answers in $($a$)$ and $($b$)$ are different