Question: Project A and project B both require an initial investment of $100 and have a 5-year life. Information regarding both projects is presented in the

  1. Project A and project B both require an initial investment of $100 and have a 5-year life. Information regarding both projects is presented in the table below:

Project A

Project B

Net present value (NPV)

$43

$47

Profitability Index (PI)

??

1.47

Internal rate of return (IRR)

24%

21%

  1. Calculate the Profitability Index (PI) for project A. (2 marks)
  2. If project A and B are independent, which project/projects would be accepted? Why? (2 marks)
  3. If project A and B are mutually exclusive, which project/projects would be accepted? Why? (2 marks)

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