3 Profitability Index. Consider the following projects: (L08-3) C1 Project A B -$2,100 -2,100 +$2,000 +1,440 C2 +$1,200 +1,728 a. Calculate the profitability index for A and B assuming a 22% opportunity cost of capital. b. According to the profitability index rule, which project(s) should you accept? us to pay for its investment projects? d. Which project is most attractive to a firm that is limited in the funds it can raise 26. Investment Criteria. If you insulate your office for $10,000, you will save $1.000 a year in heating expenses. These savings will last forever. (LO8-1, L08-2, and LO8-4) a. What is the NPV of the investment when the cost of capital is 8%? b. What if it is 10%? c. What is the IRR of the investment? d. What is the payback period on this investment? 27. Payback. A project that costs $2,500 to install will provide annual cash flows of $600 for the next 6 years. (L08-4) a. The firm accepts projects with payback periods of less than 5 years. What is this project's payback period? b. Will it be accepted? c. Should this project be pursued if the discount rate is 2%? (What is its NPV?) d. What if the discount rate is 12%? e. Will the firm's decision change as the discount rate changes? 28. Payback and NPV. A project has a life of 10 years and a payback period of 10 years. Is the project NPV positive or negative? (L08-4) 29. Payback and NPV. Here are the expected cash flows for three projects: (L08-4) Cash Flows Year: 1 Project A +1,000 27. Payback. A project that costs $2,500 to install will provide annual cash flows of $600 for the next 6 years. (L08-4) a. The firm accepts projects with payback periods of less than 5 years. What is this project's payback period? b. Will it be accepted? c. Should this project be pursued if the discount rate is 2%? (What is its NPV?) d. What if the discount rate is 12%? e. Will the firm's decision change as the discount rate changes