Net present value and profitability index Lebar Company is considering two mutually exclusive investment alternatives. Lebar has a 10% cost of capital. Cash flow information for the two alternatives appears below.

(a) Compute the net present value for each alternative and determine which al¬ ternative is more desirable using the net present value criterion.

(b) Compute the profitability index for each alternative and determine which al¬ ternative is more desirable using the profitability index criterion.

(c) Why do the rankings differ under the two alternatives? Which alternative would you recommend?(LO 1)

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Initial investment in equipment Increase in annual cash flows Life of equipment Salvage value of equipment $170,000 $ 50,000 5 years 0 $100,000 $ 30,000 5 years 0