1. 16.

Problems with profitability index [LO 9.1, LO 9.7] The Boggabilla Fruit Company is trying to choose between the following two mutually exclusive design projects:

1. 1. If the required return is 10 per cent and the company applies the profitability index decision rule, which project should the firm accept?
2. If the company applies the NPV decision rule, which project should it take?
3. Explain why your answers in

(a) and

(b) are different

Transcribed Image Text:

Year Cash flow (I) Cash flow (II) 0 -$63000 -$15500 1 28 900 7900 2 28900 7900 3 28900 7900