You Are Considering the Following Two Mutually Exclusive Projects Based Upon the Profitability Index (PI) and the Information Provided

question 34

Multiple Choice

You are considering the following two mutually exclusive projects. Both projects will be depreciated using straight-line depreciation to a zero book value over the life of the project. Neither project has any salvage value.
$\begin{array}{l}\begin{array} { | l | l | l | } \hline \text { Year } & \text { Project A } & \text { Project B } \\\hline 0 & £ 75,000 & £ 70,000 \\\hline 1 & £ 19,000 & £ 10,000 \\\hline 2 & £ 48,000 & £ 16,000 \\\hline 3 & £ 12,000 & £ 72,000 \\\hline\end{array}\\\begin{array} { | l | l | l | } \hline & \text { Project A } & \text { Project B } \\\hline \text { Required rate of return } & 10 \% & 13 \% \\\hline \text { Required payback period } & 2.0 \text { years } & 2.0 \text { years } \\\hline \text { Required accounting return } & 8 \% & 11 \% \\\hline\end{array}\end{array}$
Based upon the profitability index (PI) and the information provided in the problem, you should:

• A)accept both project A and project B.
• B)accept project A and reject project B.
• C)accept project B and reject project A.
• D)reject both project A and project B.
• E)disregard the PI method in this case.

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Definitions:

Natural Zero

A point on a scale at which the variable measured has a true absence of the property, indicating a meaningful zero point.

Time Series Data

Data that is collected at successive points in time, often analyzed to study trends, cycles, or seasonal variations over time.

Extended Period

A length of time that is longer than usual or expected.

Collected

Gathered or amassed from different sources, often referring to data, samples, or other information.