Profitability

index.

Given the discount rate and the future cash flow of each project listed in the following table,

,use the PI to determine which projects the company should accept.

Cash Flow Project A Project B Year 0 -1,800,000 -2,500,000 Year 1 100,000 1,250,000 Year 2 300,000 1,050,000 Year 3 500,000 850,000 Year 4 700,000 650,000 Year 5 900,000 450,000 Discount rate 5% 13%

What is the PI of project A?

What is the PI of project B?

Which projects should be accepted?