A firm is considering 2 capital investment projects. Project A involves an initial cost of $125,000. The discounted present value of all future cash flows is $145,000. Project B requires an initial expenditure of $85,000. The discounted present value of all future cash flows is $102,000.
- Calculate the net present value of each of the 2 projects. Which would be preferred according to the net present value criterion?
- Calculate the profitability index of each of the 2 projects. Which would be preferred according to the profitability index criterion?