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Compute the profitability index for each of the following two proposals assuming the desired minimum rate of return is 20 per cent. Based on the
Compute the profitability index for each of the following two proposals assuming the desired minimum rate of return is 20 per cent. Based on the profitability indexes, which proposal is better?
| Proposal 1 | Proposal 2 |
Initial cash outlay | $ 16,000 | $ 10,300 |
Net cash inflow (after taxes): | ||
First year | 10,000 | 6,000 |
Second year | 9,000 | 6,000 |
Third year | 6,000 | 4,000 |
Fourth year | -0- | 2,500
|
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