The following cash flows are estimated for two projects:

Year Project A Project B

$0-$$$500,000-$$$1,000,000$

$1$ $$500,000$ $$600,000$

$2$ $$500,000$ $$400,000$

$3$ $$100,000$ $$1,000,000$

a$.$ Calculate the net present value for each service. Which project is more desirable according to the

NPV criterion?

b$.$ Calculate the profitability index for each service. Which project is more desirable according to the

PI criterion?

c$.$ If the two projects are mutually exclusive and the firm does not face any capital constraint, which

project or projects should be chosen?

d$.$ If the two projects are mutually exclusive however the firm faces capital constraints whereby it has

to ensure the highest return on invested capital, which project or projects should be chosen?