Question 3: 15 marks

(a)What is the profitability index of an investment with cash flows in years 0 thru 4 of-340, 120, 130, 153, and 166, respectively, and a discount rate of 16 percent? Should the company accept this project using this criterion (profitability index). Explain your answer. (8 marks)

(b)If the cash flows for project A are C0= -3,000, C1 = +500; C2= +1,500; and C3 = +5,000, calculate the NPV of the project using a 15 percent discount rate. Should the company accept this project using the NPV criterion. Explain your answer.(7 marks)