Yokam Company is considering two alternative projects. Project 1 requires an initial investment of $410,000 and has a present value of cash flows of $2,100,000.0. Project 2 requires an initial investment of $5,000,000 and has a present value of cash flows of $6,000,000. 1. Compute the profitability index for each project. 2. Based on the profitability index, which project should the company prefer?

Based on the profitability index, which project should the company prefer?

Profitability Index Choose Numerator: 1 Choose Denominator: Present value of cash flows 1 Initial investment Project 1 $ 2,100,000/ $ 410,000 Project 2 6,000,000 / $ 5,000,000 Profitability Index Profitability index 5.12 11 $ 1.20