6.15 The treasurer of Davids, Inc., has projected the cash flows of projects A, B, and C as follows. Suppose the relevant discount rate is 12 percent a year.

a. Compute the profitability indices for each of the three projects.

b. Compute the NPVs for each of the three projects.

c. Suppose these three projects are independent. Which projects should Davids accept based on the profitability index rule?

d. Suppose these three projects are mutually exclusive. Which project should Davids accept based on the profitability index rule?

e. Suppose Davids’ budget for these projects is $300,000. The projects are not divisible.
Which projects should Davids accept?

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Year Project A Project B Project C 0 -$100,000 -$200,000 -$100,000 12 70,000 130,000 75,000 2 70,000 130,000 60,000