Question: Project A and Project B can be characterized by the following cash flow streams below. The cost of capital for both projects is 10%. Given

Project A and Project B can be characterized by the following cash flow streams below. The cost of capital for both projects is 10%. Given the information, what is the relationship of the Profitability Index for Project A to Profitability Index for Project B:

Year 0Year 1Year 2

Project A-$1,000$300$1,300

Project B-$1,100$350$1,350

The Profitability Index of Project A and the Profitability Index of Project B are equal.

The Profitability Index of Project A and Profitability Index of Project B are both negative.

Profitability Index of Project B = 1.35, which is greater than the Profitability Index of Project A.

Profitability Index of Project A = 1.30, which is less than the Profitability Index of Project B.

Profitability Index of Project B = 1.30, which is less than the Profitability Index of Project A.

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