Question
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
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.
What is the PI of project A?
What is the PI of Project B?
| Cash Flow | Project A | Project B | ||
| Year 0 | $2,000,000 | $2,300,000 | ||
| Year 1 | $600,000 | $1,150,000 | ||
| Year 2 | $700,000 | $1,050,000 | ||
| Year 3 | $800,000 | $950,000 | ||
| Year 4 | $900,000 | $850,000 | ||
| Year 5 | $1,000,000 | $750,000 | ||
| Discount rate | 5% | 16% | ||
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Principles Of Macroeconomics
Authors: Frank, Bernanke, Antonovics, Heffetz
3rd Edition
1259117162, 9781259117169
