Question

Cori's Sausage Corporation is trying to choose between the following two mutually exclusive design projects:

Year	Cash Flow (I)				Cash Flow (II)
0	–$	47,000			–$	21,800
1		23,800				12,300
2		23,800				12,300
3		23,800				12,300

a-1.	If the required return is 11 percent, what is the profitability index for each project? (Do not round intermediate calculations and round your answers to 3 decimal places, e.g., 32.161.)

a-2.	If the company applies the profitability index decision rule, which project should the firm accept?
	multiple choice 1 Project I Project II

b-1.	What is the NPV for each project? (A negative answer should be indicated by a minus sign. Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16.)

b-2.	If the company applies the NPV decision rule, which project should it take?
	multiple choice 2 Project II Project I

Answer 1