Problems with Profitability Index [LO1, 7] The Michner Corporation is trying to choose between the following two mutually exclusive design projects: Year Cash Flow (I) Cash Flow (II) Cashflow I Cashflow II 0 $82,000 $21,700 1 37,600 11,200 2 37,600 11,200 3 37,600 11,200 a. If the required return is 10 percent and the company applies the profitability index decision rule, which project should the firm accept? b. If the company applies the NPV decision rule, which project should it take? c. Explain why your answers in parts (a) and (b) are different.

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