Problem 5-12 Problems with Profitability Index

Cori's Sausage Corporation is trying to choose between the following two mutually exclusive design projects:

Year	Cash Flow (I)				Cash Flow (II)
0	$	72,000			$	17,200
1		23,000				9,300
2		23,000				9,300
3		23,000				9,300

a-1.	If the required return is 10 percent, what is the profitability index for each project? (Do not round intermediate calculations and round your answers to 3 decimal places, e.g., 32.161.)

	Profitability Index
Project I
Project II

a-2.

If the company applies the profitability index decision rule, which project should the firm accept?

	Project I
	Project II

b-1.	What is the NPV for each project? (A negative answer should be indicated by a minus sign. Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16.)

	NPV
Project I	$
Project II	$

b-2.

If the company applies the NPV decision rule, which project should it take?

	Project II
	Project I