what is the PI for each project, and which one(s) should it be accepted or rejected?

what is the PI for each project, and which one(s) should it be accepted or rejected?

Suppose your firm is considering two
mutually exclusive, required projects with the cash flows shown below. The
required rate of return on projects of both of their risk class is 8 percent,
and that the maximum allowable payback and discounted payback statistic for the
projects are 2 and 3 years, respectively.

TIME: 0 1 2 3 Project A CF: $ – 10,000 $ 10,000 $
30,000 $ 3,000 Project B CF: $ – 30,000 $ 10,000 $ 20,000 $ 50,000

Use the Profitability Index (PI) decision rule to
evaluate these projects; what is the PI for each project, and which one(s)
should it be accepted or rejected?


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