Consider the following projects: a. Calculate the profitability index for A and B assuming a 20% opportunity

Question:

Consider the following projects:

Project Co -$2,100 C2 +$2,000 +S1,200 +1,728 -2,100 +1,440

a. Calculate the profitability index for A and B assuming a 20% opportunity cost of capita l.
b. Use the profitability index rule to determine which project(s) you should accept (1) if you could under take both and (2) if you could undertake only one.

Opportunity Cost
Opportunity cost is the profit lost when one alternative is selected over another. The Opportunity Cost refers to the expected returns from the second best alternative use of resources that are foregone due to the scarcity of resources such as land,...