Consider the following two mutually exclusive projects available to Global Investments, Inc.

The appropriate discount rate for the projects is 10 percent. Global Investments chose to undertake project A . At a luncheon for shareholders, the manager of a pension fund that owns a substantial amount of the firm€™s stock asks you why the firm chose project A instead of project B when project B has a higher profitability index

. How would you, the CFO, justify your firm€™s action? Are there any circumstances under which Global Investments should choose project B ?

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C, S1,000$500 400 PROFITABILITY INDEX NPV S1,000 -500 1.32 1.57 S322 285 500