Which project has the higher profitability index

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1) Consider projects A and B: Cash Flows (dollars) Project C0 C1 C2 NPV at 10%

A -34,500 24,600 24,600 + $8,194    

  B -54,500 37,500 37,500 + 10,583     

a. Calculate IRRs for A and B.

(Do not round intermediate calculations. Enter your answers as a percent rounded to 2 decimal places.)

Project IRR  A % B %

b. Which project does the IRR rule suggest is best? Project A Project B

c. Which project is really best? Project A Project B

2)Consider projects A and B with the following cash flows:



C0
C1
C2
C3
  A
- $ 33
+ $ 17
+ $ 17
+ $ 17
  B
-
58
+
33
+
33
+
33

a-1.   What is the NPV of each project if the discount rate is 10%? (Do not round intermediate calculations. Round your answers to 2 decimal places.)

a-2.    Which project has the higher NPV?

Project B
Project A

b-1.    What is the profitability index of each project? (Do not round intermediate calculations. Round your answers to 2 decimal places.)

b-2.    Which project has the higher profitability index?

Project B

Project A

c-1. Which project is most attractive to a firm that can raise an unlimited amount of funds to pay for its investment projects?

Project B

Project A

c-2. Which project is most attractive to a firm that is limited in the funds it can raise?

Project B

Project A

Both

Reference no: EM131901774

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