For questions one through four, consider the following two projects. Assume they are not mutually exclusive projects, which means that you could possibly invest in both. Regardless of the decision rule used, your required rate of return for both of these projects is 15%.
| Year |
Project A Cash Flows |
Project B Cash Flows |
| 0 |
-$350,000 |
-$50,000 |
| 1 |
45,000 |
24,000 |
| 2 |
65,000 |
22,000 |
| 3 |
65,000 |
19,500 |
| 4 |
440,000 |
14,600 |
What is the profitability index for each project?
PIA is 1.09, PIB is 1.17PIA is 0.91, PIB is 0.85PIA is 1.76, PIB is 1.60PIA is 0.57, PIB is 0.62