The Weiland Computer Corporation is trying to choose between the following mutually exclusive design projects, P1 and P2: Year 0 1 2 3 Cash flows (P1) -$53,000 27,000 27,000 27,000 Cash flow (P2) -$16,000 9,100 9,100 9,100 If the discount rate is 10 percent and the company applies the profitability index (PI) decision rule, which project should the firm accept? If the firm applies the Net Present Value (NPV) decision rule, which project should it take? Are your answers in (a) and (b) different? Explain why?
The Weiland Computer Corporation is trying to choose between the following mutually exclusive design projects, P1 and P2: Year 0 1 2 3 Cash flows (P1) -$53,000 27,000 27,000 27,000 Cash flow (P2) -$16,000 9,100 9,100 9,100 If the discount rate is 10 percent and the company applies the profitability index (PI) decision rule, which project should the firm accept? If the firm applies the Net Present Value (NPV) decision rule, which project should it take? Are your answers in (a) and (b) different? Explain why?
Intermediate Financial Management (MindTap Course List)
13th Edition
ISBN:9781337395083
Author:Eugene F. Brigham, Phillip R. Daves
Publisher:Eugene F. Brigham, Phillip R. Daves
Chapter12: Capital Budgeting: Decision Criteria
Section: Chapter Questions
Problem 11P
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The Weiland Computer Corporation is trying to choose between the following mutually exclusive design projects, P1 and P2:
|
Year |
0 |
1 |
2 |
3 |
|
Cash flows (P1) |
-$53,000 |
27,000 |
27,000 |
27,000 |
|
Cash flow (P2) |
-$16,000 |
9,100 |
9,100 |
9,100 |
- If the discount rate is 10 percent and the company applies the profitability index (PI) decision rule, which project should the firm accept?
- If the firm applies the
Net Present Value (NPV) decision rule, which project should it take? - Are your answers in (a) and (b) different? Explain why?
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