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Evaluate the following projects, using the profitability index. Assume a cost of capital of 12%. Project S Project T Initial Cash Outflow -$390,000 -$750,000 Year
Evaluate the following projects, using the profitability index. Assume a cost of capital of 12%.
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| Project S | Project T |
| Initial Cash Outflow | -$390,000 | -$750,000 |
| Year 1 Cash flow | 34,500 | 480,000 |
| Year 2 Cash flow | 190,500 | 285,000 |
| Year 3 Cash flow | 285,000 | 225,000 |
Required:
| a. | What is the profitability index for each project? (3 marks) |
| b. | If the projects are independent, which would you accept according to the profitability index criterion? (1 mark) |
| c. | If these projects are mutually exclusive, which would you accept according to the PI criterion? (1 mark) |
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