East Carolina UniversityFINA 6144 Problem 1) Profitability Index What is the profitability index for the following set of cash flows if the relevant discount rate is 10 percent? What if the discount rate is 15 percent? If it is 22 percent? Year Cash Flow 0 -$31,000 1 17,300 2 15,200 3 10,600       Problem 2)  Profitability Index The Matterhorn Corporation is trying to choose between the following two mutually exclusive design projects: Year Cash Flow ( I) Cash Flow ( II) 0 -$65,000 -$24,000 1 24,000 8,000 2 29,000 14,500 3 36,000 12,800 If the required return is 11 percent and the company applies the profitability index decision rule, which project should the firm accept? If the company applies the NPV decision rule, which project should it take? Explain why your answers in ( a) and ( b) are different

Subject:FinancePrice:3.87 Bought7

Share With

East Carolina UniversityFINA 6144

Problem 1) Profitability Index

What is the profitability index for the following set of cash flows if the relevant discount rate is 10 percent? What if the discount rate is 15 percent? If it is 22 percent?

Year	Cash Flow
0	-$31,000
1	17,300
2	15,200
3	10,600

 

Problem 2)  Profitability Index

The Matterhorn Corporation is trying to choose between the following two mutually exclusive design projects:

Year	Cash Flow ( I)	Cash Flow ( II)
0	-$65,000	-$24,000
1	24,000	8,000
2	29,000	14,500
3	36,000	12,800

1. If the required return is 11 percent and the company applies the profitability index decision rule, which project should the firm accept?
2. If the company applies the NPV decision rule, which project should it take?
3. Explain why your answers in ( a) and ( b) are different.