The Sloan Corporation is trying to choose between the following two mutually exclusive design projects: YearCash Flow(I) Cash Flow(II)0–$55,000 –$18,900 1 25,000 10,150 2 25,000 10,150 3 25,000 10,150 a-1If the required return is 10 percent, what is the profitability index for both projects? (Do not round intermediate calculations. Round your answers to 3 decimal places, e.g., 32.161.) a-2If the company applies the profitability index decision rule, which project should the firm accept? Project IProject Il b-1What is the NPV for both projects? (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-2If the company applies the NPV decision rule, which project should it take? Project IProject II

Answered: If the required return is 10 percent,…

Financial And Managerial Accounting

15th Edition

ISBN:9781337902663

Author:WARREN, Carl S.

Publisher:WARREN, Carl S.

Chapter26: Capital Investment Analysis

Section: Chapter Questions

Problem 2CMA: Staten Corporation is considering two mutually exclusive projects. Both require an initial outlay of...

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

Year	Cash Flow (I)		Cash Flow (II)
0	–$	55,000		–$	18,900
1		25,000			10,150
2		25,000			10,150
3		25,000			10,150

a-1

If the required return is 10 percent, what is the profitability index for both projects? (Do not round intermediate calculations. 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?

	Project I Project Il

b-1

What is the NPV for both projects? (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?

	Project I Project II

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