Question
Parkallen Inc. has identified the following two mutually exclusive projects: Year Cash Flow (A) Cash Flow (B) 0 -$29,000 -$29,000 1 14,400 4,300 2 12,300
Parkallen Inc. has identified the following two mutually exclusive projects:
| Year | Cash Flow (A) | Cash Flow (B) |
|---|---|---|
| 0 | -$29,000 | -$29,000 |
| 1 | 14,400 | 4,300 |
| 2 | 12,300 | 9,800 |
| 3 | 9,200 | 15,200 |
| 4 | 5,100 | 16,800 |
If the required return is 11%, what is the profitability index for each of these projects? Which project will the company choose if it applies the profitability index decision rule?
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Derivatives Markets
Authors: Rober L. Macdonald
4th edition
321543084, 978-0321543080
