Corporate Finance
Corporate Finance
12th Edition
ISBN: 9781259918940
Author: Ross, Stephen A.
Publisher: Mcgraw-hill Education,
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Chapter 5, Problem 9CQ

Net Present Value versus Profitability Index Consider the following two mutually exclusive projects available to Global Investments, Inc.:

Chapter 5, Problem 9CQ, Net Present Value versus Profitability Index Consider the following two mutually exclusive projects

The appropriate discount rate for the projects is 10 percent. Global Investments chose to undertake Project A. At a luncheon for shareholders, the manager of a pension fund that owns a substantial amount of the firm’s stock asks you why the firm chose Project A instead of Project B when Project B has a higher profitability index.

How would you, the CFO, justify your firm’s action? Are there any circumstances under which Global Investments should choose Project B?

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