The Angry Bird Corporation is trying to choose between the following two mutually exclusive design projects: Here are the questions to answer:
a. If the required return is 10% and the company applies the profitability index decision rule, which project should the firm accept?
b. If the company applies the NPV decision rule, which project should the firm take?
c. Explain why your answers in (a) and (b) are different.
| Year |
Cash Flow (I) |
Cash Flow (II) |
| 0 |
$ (64,000.00) |
$ (18,000.00) |
| 1 |
$ 31,000.00 |
$ 9,700.00 |
| 2 |
$ 31,000.00 |
$ 9,700.00 |
| 3 |
$ 31,000.00 |
$ 9,700.00 |