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