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Compute: Profitability Index versus NPV

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Profitability Index versus NPV. Consider these two projects:

Project C0 C1 C2 C3
A -$18 +$10 +$10 +$10
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?

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Solution Summary

This solution provides calculations and explanations in an attached Word and Excel document for these basic business problems focusing on the concepts of NPV and the profitability index.

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  • BA, Ain Shams University, Cairo Egypt
  • MBA, California State University, Sacramento
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