Project A costs $45,000 with cash inflows of $34,200 in year 1 and $28,700 in year 2.

Question:

Project A costs $45,000 with cash inflows of $34,200 in year 1 and $28,700 in year 2. Project B costs $59,200 with cash inflows of $21,900 in year 1 and $59,200 in year 2. These projects are independent and have an assigned discount rate of 15 percent. Based on the profitability index, what is your recommendation concerning these projects?
a. Accept both projects.
b. Reject both projects.
c. Accept Project A and reject Project B.
d. Accept Project B and reject Project A.
e. Accept either project but not both projects.

Discount Rate
Depending upon the context, the discount rate has two different definitions and usages. First, the discount rate refers to the interest rate charged to the commercial banks and other financial institutions for the loans they take from the Federal...