Problems with Profi tability Index The Robb Computer Corporation is trying to choose between the following two mutually exclusive design projects:

Year Cash Flow (I) Cash Flow (II)
0 $30,000 $5,000 1 15,000 2,800 2 15,000 2,800 3 15,000 2,800

a. If the required return is 10 percent and Robb Computer applies the profi tability index decision rule, which project should the fi rm accept?

b. If the company applies the NPV decision rule, which project should it take?

c. Explain why your answers in

(a) and

(b) are different. LO.1