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Which has the higher profitability index


Question:

Profitability Index versus NPV.
Consider these two projects:
Project C0 C1 C2 C3
A -$36 +$20 +$20 +$20
B - 50 + 25 + 25 + 25

Q1. Which project has the higher NPV if the discount rate is 10 percent?

Q2. Which has the higher profitability index?

Q3. Which project is most attractive to a firm that can raise an unlimited amount of funds to pay for its investment projects? Which project is most attractive to a firm that is limited in the funds it can raise?

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Finance Basics: Which has the higher profitability index
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