Suppose the following two independent investment opportunities are available to Relax. Inc. The appropriate discount rate is 12 percent.
|
Year
|
Project Alpha
|
Project Beta
|
|
0
|
-$4.300
|
-$5.900
|
|
1
|
2.200
|
1,300
|
|
2
|
2.100
|
4,300
|
|
3
|
1.400
|
3,900
|
a. Compute the profitability index for each of the two projects.
b. Which project should the company accept based on the profitability index rule?
Project Alpha
Project Beta