Assume the firm invests $110,000 today to get $29,000 at Year 1 (i.e. one year from now), $26,000 at Year 2, $35,000 at Year 3, $43,000 at Year 4, $27,500 at Year 5, and $16,500 at Year 6. Assuming the required rate of return for the firms industry is 11.1%, what is this projects profitability index?

Same facts as above, but assume that the firm expands its investment such that the revenues will go up by 20%, but the discount rate will also increase to 19.5%. What is the new profitability index?

Same facts as Questions 6 and 7: Which of the following best describes how this project's Profitability Index changes based on the increase in revenues by 20% and a corresponding increase in the discount rate to 16.5%?

Group of answer choices

The Profitability Index slightly increases because there are increase in revenues, which increases the Profitability Index, and increase in discount rate that does not affect the Profitability Index.

The Profitability Index slightly increases because the increase in revenues is offset by the increase in the discount rate, since a higher discount rate decreases the Net Present Value and therefore the Profitability Index.

The Profitability Index slightly decreases because the increase in discount rate overshadows any benefits form the increase in revenue.

The Profitability Index slightly decreases because the increase in revenues does not affect the Profitability Index, while the increase in discount rate generally decreases the Profitability Index.

Flag question: Question 9

Question 92.5 pts

Assume the firm can either take Project A or Project B. Project A will require the initial investment of $70,000 and will yield $15,000 at Year 1, $16,000 at Year 2, $19,000 at Year 3, $30,000 at Year 4, $27,000 at Year 5, and $9,500 at Year 6. Project B will require the initial investment of $75,000 and yield $15,000 at Year 1, $16,000 at Year 2, $18,000 at Year 3, $21,000 at Year 4, $30,000 at Year 5, and $28,000 at Year 6. If the interest/discount rate that applies to both project is 10.1%, which of these two projects is a better option if the decision is made based on the Net Present Value (NPV) basis?

Group of answer choices

Project A

Project B

There is no difference

There is insufficient information to make a decision