1- Calculating Profitability Index. What is the profitability index for the following set of cash flows if the relevant discount rate is 10 percent? What if the discount rate is 15 percent? If it is 22 percent?

2- Problems with Profitability Index. The Sloan Corporation is trying to choose between the following two mutually exclusive design projects:

1. If the required return is 10 percent 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.

Year Cash Flow 0 -$16,700 1 9,700 2 7,800 3 4,300 Year Cash Flow (1) Cash Flow (II) 0 -$63,000 -$15,500 1 28,900 7,900 2 28,900 7,900 3 28,900 7,900