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# 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?

#### 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 which project has higher NPV and profitability index and which project is most attractive to invest.

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