Problem 5-14 Investment criteria

Consider the following two projects:

	A	B
C0	-280	-280
C1	120	148
C2	120	148
C3	120	148
C4	120

1. h-1. If the opportunity cost of capital is 11%, what is the profitability index for each project?

Problem 5-14 Investment criteria Consider the following two projects: Cash flows C1 Project A Project B -$ 280 -$280 120 148 120 148 120 148 120 C2 C3 C4 a. If the opportunity cost of capital is 11%, which of these two projects would you accept (A, B, or both)? b. Suppose that you can choose only one of these two projects. Which would you choose? The discount rate is still 11%. c. Which one would you choose if the cost of capital is 16%? d. What is the payback period of each project? e. Is the project with the shortest payback period also the one with the highest NPV? f. What are the internal rates of return on the two projects? g. Does the IRR rule in this case give the same answer as NPV? h-1. If the opportunity cost of capital is 11%, what is the profitability index for each project? h-2. Is the project with the highest profitability index also the one with the highest NPV? h-3. Which measure should you use to choose between the projects? Complete this question by entering your answers in the tabs below. ReqA ReqB Reqc Req D ReqE ReqF Reg G Req H1 Reg H2 Req H3 If the opportunity cost of capital is 11%, what is the profitability index for each project? (Round your answers to 2 decimal places.) Project A Project B Profitability Index