Question: UVW Ltd. is considering two long-term projects, Project U and Project V, with the following characteristics: Project U: Cost of Capital - 9%, Initial Investment

UVW Ltd. is considering two long-term projects, Project U and Project V, with the following characteristics:

  • Project U: Cost of Capital - 9%, Initial Investment - $300,000, Cash Inflow Year 1 - $70,000, Cash Inflow Year 2 - $80,000, Cash Inflow Year 3 - $90,000
  • Project V: Cost of Capital - 10%, Initial Investment - $350,000, Cash Inflow Year 1 - $80,000, Cash Inflow Year 2 - $90,000, Cash Inflow Year 3 - $100,000 Determine the profitability index for Project U and Project V. Compare the two projects and provide a recommendation.

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