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B. C. Rogers: Profitability, NPV, Required Return

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B.C. Rogers, Inc., is presented with the following two mutually exclusive projects. The required return is 15%.


a) What is the profitability index for each project?

b) What is the NPV for each project?

c) Which, if either, of the projects should the company choose?

Year Project K Project S
0 -35,000 -350,000
1 18,000 120,000
2 17,000 115,000
3 16,000 110,000
4 15,000 105,000
5 14,000 100,000.

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Solution Summary

The solution is very comprehensive and easy to understand with the formulas disclosed and a table of the values. The problems are solved together with an opinion about whether to accept one or both projects.

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