The Weiland Computer Corporation is trying to choose between the following mutually exclusive design projects, P1 and P2: Year 0 1 2 3 Cash flows (P1) -$53,000 27,000 27,000 27,000 Cash flow (P2) -$16,000 9,100 9,100 9,100 If the discount rate is 10 percent and the company applies the profitability index (PI) decision rule, which project should the firm accept? If the firm applies the Net Present Value (NPV) decision rule, which project should it take? Are your answers in (a) and (b) different? Explain why?

Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
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The Weiland Computer Corporation is trying to choose between the following mutually exclusive design projects, P1 and P2:

Year

0

1

2

3

Cash flows (P1)

-$53,000

27,000

27,000

27,000

Cash flow (P2)

-$16,000

9,100

9,100

9,100

  1. If the discount rate is 10 percent and the company applies the profitability index (PI) decision rule, which project should the firm accept?
  2. If the firm applies the Net Present Value (NPV) decision rule, which project should it take?
  3. Are your answers in (a) and (b) different? Explain why?
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