Suppose the following two independent investment opportunities are available to Relax, Inc. The appropriate discount rate is 9 percent.
Year Project Alpha Project Beta
0 −$2,700 −$4,300
1 1,400 900
2 1,300 2,700
3 1,000 3,100
a. Compute the profitability index for each of the two projects. (Do not round intermediate calculations and round your answers to 3 decimal places, e.g., 32.161.)
Profitability Index
Project Alpha:
Project Beta:
b. Which project should the company accept based on the profitability index rule?
Project Alpha or Project Beta