Calculating profitability index for given opportunity cost


Problem: Consider the following projects:

Project Co C1 C2
A -$2,000 +$2,000 +$1,200
B -$2,000 +$1,440 +$1,728

a. Calculate the profitability index for A and B assuming a 22% opportunity cost of capital

b. Use the profitability index rule to determine which project(s) you should accept if you could undertake both and if you could undertake only one (which one?)

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Finance Basics: Calculating profitability index for given opportunity cost
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