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Calculating the profitability index

Problem:

Consider the following projects:

Project A: C0: -2100 C1: +2100 C2: +1200
Project B: Co: -2100 C1: +1440 C2: +1728

Q1. Calculate the profitability index for A and B assuming a 22 percent opp. cost of capital

Q2. Use the profitability index rule to determine which project(s) you should accept if you could undertake both and if you could undertake only one.

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Finance Basics: Calculating the profitability index

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