The Klingon Sausage Corporation is trying to choose between the following two projects: Year Cash Flow (Project I) Cash Flow (Project II) 0 -$363,000 -$165,000 1 184,800 99,600 2 184,800 99,600 3 184,800 99,600 The discount rate of both projects is 8%. Klingon’s manager believes the company has sufficient resources so that the two projects should not be treated as mutually exclusive. Which project should be taken based on the profitability index? A. Project I should be accepted and project II should be rejected. B. None of the projects should be accepted. C. Project I should be rejected and project II should be accepted. D. Both projects should be accepted.
The Klingon Sausage Corporation is trying to choose between the following two projects: Year Cash Flow (Project I) Cash Flow (Project II) 0 -$363,000 -$165,000 1 184,800 99,600 2 184,800 99,600 3 184,800 99,600 The discount rate of both projects is 8%. Klingon’s manager believes the company has sufficient resources so that the two projects should not be treated as mutually exclusive. Which project should be taken based on the profitability index? A. Project I should be accepted and project II should be rejected. B. None of the projects should be accepted. C. Project I should be rejected and project II should be accepted. D. Both projects should be accepted.
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Question
The Klingon Sausage Corporation is trying to choose between the following two projects:
|
Year |
Cash Flow (Project I) |
Cash Flow (Project II) |
|
0 |
-$363,000 |
-$165,000 |
|
1 |
184,800 |
99,600 |
|
2 |
184,800 |
99,600 |
|
3 |
184,800 |
99,600 |
The discount rate of both projects is 8%. Klingon’s manager believes the company has sufficient resources so that the two projects should not be treated as mutually exclusive. Which project should be taken based on the profitability index?
| A. |
Project I should be accepted and project II should be rejected. |
|
| B. |
None of the projects should be accepted. |
|
| C. |
Project I should be rejected and project II should be accepted. |
|
| D. |
Both projects should be accepted. |
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