Assignment
For questions one through four, consider the following two projects. Assume they are not mutually exclusive projects, which means that you could possibly invest in both.
Regardless of the decision rule used, your required rate of return for both of these projects is 15%.
| Year |
Project A Cash Flows |
Project B Cash Flows |
| 0 |
-$350,000 |
-$50,000 |
| 1 |
45,000 |
24,000 |
| 2 |
65,000 |
22,000 |
| 3 |
65,000 |
19,500 |
| 4 |
440,000 |
14,600 |
1.If you have a payback cutoff date of three years, then which of these projects, if any, would you accept?
A.Project A only
B.Project B only
C.both Project A and Project B
D.neither Project A nor Project B
2. If you have a discounted payback cutoff date of three years, then which of these projects, if any, would you accept?
A.Project A only
B.Project B only
C.both Project A and Project B
D.neither Project A nor Project B
3.Based on the net present value decision rule, which of these projects, if any, would you accept?
A.Project A only
B.Project B only
C.both Project A and Project B
D.neither Project A nor Project B
4.What is the profitability index for each project?
A. PIA is 1.09, PIB is 1.17
B. PIA is 0.91, PIB is 0.85
C. PIA is 1.76, PIB is 1.60
D. PIA is 0.57, PIB is 0.62