A company is considering two equally risky mutually exclusive projects. The relevant cash flows
are as follows:
Period Project A Project B
0 -$285,000 -$270,000
1 100,000 110,000
2 100,000 100,000
3 100,000 90,000
4 100,000 80,000
i. Calculate the Net Present Values for project A and project B assuming the company’s required rate of return is 14%. Which project should the company choose?
ii. Calculate the profitability index for project A and project B.