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Compute each project profitability index

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Reference no: EM133095624

Question - Rowan Company is considering two alternative investment projects. Each requires a $258,000 initial investment. Project A is expected to generate net cash flows of $68,000 per year over the next six years. Project B is expected to generate net cash flows of $58,000 per year over the next seven years. Management requires an 7% rate of return on its investments.

Required -

1. Compute each project's net present value.

2. Compute each project's profitability index.

3. If the company can choose only one project, which should it choose, based on profitability index?

Reference no: EM133095624

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