Problem 8-14 Problems with Profitability Index [LO 6]

The Matterhorn Corporation is trying to choose between the following two mutually exclusive design projects:

Year	Cash Flow (I)	Cash Flow (II)
0	$78,000	$36,000
1	30,000	12,000
2	38,000	25,500
3	44,000	19,500

Requirement 1:
(a)	If the required return is 13 percent, what is the profitability index for each project? (Do not round intermediate calculations. Round your answers to 3 decimal places (e.g., 32.161).)

	Profitability index
Project I
Project II

(b)	If the required return is 13 percent and the company applies the profitability index decision rule, which project should the firm accept?
	(Click to select)Project IIProject I

Requirement 2:
(a)	If the required return is 13 percent, what is the NPV for each project? (Do not round intermediate calculations. Round your answers to 2 decimal places (e.g., 32.16).)

	Net present value
Project I	$
Project II	$

(b)	If the company applies the NPV decision rule, which project should it take?
	(Click to select)Project IProject II