Net Present Value and Profitability Index
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Lebar Company is considering two mutually exclusive investment alternatives. Lebar has a 10% cost of capital. Following is the cash flow information for the two alternatives (see attached):
Compute the net present value for each alternative and determine which alternative is more desirable using the net value criterion.
Compute the profitability index for each alternative and determine which alternative is more desirable using
the profitability index criterion.
Why do the rankings differ under the two alternatives? Which alternative would you recommend?
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Solution Summary
The solution compare two alternatives using Net Present Value and Profitability Index techniques.
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