Important information about Profitability Index versus NPV.
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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%?
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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This solution is comprised of a detailed explanation to answer which project has higher NPV and profitability index and which project is most attractive to invest.
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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 ...
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