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Jane, the CFO of Tech Innovators, Inc., is evaluating two potential projects, A and B. Project Cash Flows and IRR: Project C0 ($ thousands) C1

Jane, the CFO of Tech Innovators, Inc., is evaluating two potential projects, A and B.

Project Cash Flows and IRR:

Project

C0 ($ thousands)

C1 ($ thousands)

C2 ($ thousands)

IRR (%)

A

-50

20

30

17.50

B

-60

35

25

16.25

The opportunity cost of capital is 10%.

Requirements:

  1. Explain why the higher IRR might be misleading in this case.
  2. Calculate the Profitability Index (PI) for each project.
  3. Advise on which project should be selected based on the PI.
  4. Suggest any additional analyses that should be performed before making the final decision.

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