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Suppose the following two independent investment opportunities are available to Relax, Inc. The appropriate discount rate is 10 percent. Year Project Alpha Project Beta 0
Suppose the following two independent investment opportunities are available to Relax, Inc. The appropriate discount rate is 10 percent. |
Year | Project Alpha | Project Beta |
0 | $2,900 | $4,500 |
1 | 1,500 | 950 |
2 | 1,400 | 2,900 |
3 | 1,050 | 3,200 |
a. | Compute the profitability index for each of the two projects. (Do not round intermediate calculations and round your answers to 3 decimal places, e.g., 32.161.) |
| Profitability Index |
Project Alpha |
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Project Beta |
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b. | Which project should the company accept based on the profitability index rule? | ||||
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