There are two projects. One has an outflow of cash of $40,000 in years 0 and 1, followed by an inflow of $55,000 in each of the years 2 and 3. The other has a cash outflow of $80,000 in year 0, followed by an inflow of $34,000 in years 1, 2, and 3.
If the profitability index decision rule applies and the required return is 8%, which project should be selected?
If the NPV decision rule applies then which project should be selected?
Please show all your calculations used to derive the answers.