Problem:
The following are the cash flows of two projects:
Year Project A Project B
0 --$400 --$400
1 230 300
2 230 300
3 230 300
4 230
a. If the opportunity cost of capital is 10%, what is the profitability index for each project? (Do not round intermediate calculations. Round your answers to 4 decimal places.)
Project Profitability Index
A =
B =
b. Does the profitability index rank the projects correctly?
Yes or No