Problem 5-17 Comparing Investment Criteria

The treasurer of Amaro Canned Fruits, Inc., has projected the cash flows of projects A, B, and C as follows:

Year	Project A			Project B			Project C
0	?$	195,000		?$	325,000		?$	195,000
1		145,000			238,000			155,000
2		145,000			238,000			125,000

Suppose the relevant discount rate is 12 percent a year.

a.	Compute the profitability index for each of the three projects. (Do not round intermediate calculations. Round your answers to 2 decimal places. (e.g., 32.16))

	Profitability index
Project A
Project B
Project C

b.	Compute the NPV for each of the three projects. (Do not round intermediate calculations. Round your answers to 2 decimal places. (e.g., 32.16))

	NPV
Project A	$
Project B	$
Project C	$

c.

Suppose these three projects are independent. Which project(s) should Amaro accept based on the profitability index rule?

	Project A
	Project B
	Project C
	Project A, Project B, Project C
	Project A, Project B
	Project A, Project C
	Project B, Project C

d.

Suppose these three projects are mutually exclusive. Which project(s) should Amaro accept based on the profitability index rule?

	Project A
	Project B
	Project C
	Project A, Project B, Project C
	Project A, Project B
	Project A, Project C
	Project B, Project C

e.

Suppose Amaros budget for these projects is $520,000. The projects are not divisible. Which project(s) should Amaro accept?

	Project A
	Project B
	Project C
	Project A, Project B, Project C
	Project B, Project C
	Project B, Project A
	Project A, Project C