# Profitability Index versus NPV.

Profitability Index versus NPV.

Consider these two projects:

Project C0 C1 C2 C3

A -$36 +$20 +$20 +$20

B - 50 + 25 + 25 + 25

a. Which project has the higher NPV if the discount rate is 10 percent?

b. Which has the higher profitability index?

c. Which project is most attractive to a firm that can raise an unlimited amount of funds to pay

for its investment projects? Which project is most attractive to a firm that is limited in the

funds it can raise?

https://brainmass.com/business/profitability-index/164640

#### Solution Preview

Profitability Index Versus NPV.

Consider these two projects

Project A: C0= -$36, C1= +$20, C2= +$20, C3= +$20

Project B: C0= -$50, C1= +$25, C2= +$25, C3= +$25

a. Which project has the higher NVP if the discount rate is 10%?

NPV is calculated by finding the present value of each cash flow, including both cash inflows and outflows, discounted at the project's cost of ...

#### Solution Summary

This solution is comprised of a detailed explanation to answer:

a. Which project has the higher NPV if the discount rate is 10 percent?

b. Which has the higher profitability index?

c. Which project is most attractive to a firm that can raise an unlimited amount of funds to pay

for its investment projects? Which project is most attractive to a firm that is limited in the

funds it can raise?