question archive The ABC Corporation is trying to choose between the following two mutually exclusive design projects
The ABC Corporation is trying to choose between the following two mutually exclusive design projects
Subject:AccountingPrice: Bought3
The ABC Corporation is trying to choose between the following two mutually exclusive design projects.
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YEAR CASH FLOW (I) CASH FLOW (II)
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0 -$75,000 -$42,000
1 39,000 24,000
2 39,000 24,000
3 39,000 24,000
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a. If the required return for both projects is 10 percent and the company applies the profitability index decision rule, which project should the firm accept?
b. If the company applies the NPV decision rule, which project should it choose?
c. Explain why your answers in (a) and (b) are different.
