Year       Cash Flow (I)   Cash Flow (II)    0            $51,000            $14,400    1              24,800              7,800    2              24,800              7,800    3              24,800              7,800   The Sloan Corporation is trying to choose between the following two mutually exclusive design projects: a. If the required return 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 take? c. Explain why your answers in (a) and (b) are different.

Question

Year       Cash Flow (I)   Cash Flow (II)

   0            $51,000            $14,400

   1              24,800              7,800

   2              24,800              7,800

   3              24,800              7,800

 

The Sloan Corporation is trying to choose between the following two mutually exclusive design projects: a. If the required return 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 take? c. Explain why your answers in (a) and (b) are different.

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