16. Problems with Profitability Index [LO1, 7] The Weiland Computer Corporation is trying to choose between the following two mutually exclusive design projects: Year Cash Flow (I) Cash Flow (II) -$53,000 -$16,000 1 27,000 9,100 2. 27,000 9,100 27,000 9,100 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?

Essentials Of Investments
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ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
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16. Problems with Profitability Index [LO1, 7] The Weiland Computer Corporation
is trying to choose between the following two mutually exclusive design projects:
Year
Cash Flow (1)
Cash Flow (II)
-$53,000
27,000
-$16,000
9,100
9,100
1
2.
27,000
3
27,000
9.100
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?
Transcribed Image Text:16. Problems with Profitability Index [LO1, 7] The Weiland Computer Corporation is trying to choose between the following two mutually exclusive design projects: Year Cash Flow (1) Cash Flow (II) -$53,000 27,000 -$16,000 9,100 9,100 1 2. 27,000 3 27,000 9.100 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?
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