You Are Considering Two Independent Projects Both of Which Have

question 53

Multiple Choice

You are considering two independent projects both of which have been assigned a discount rate of 8 percent.Project A costs $13,100 and produces cash flows of $5,300 a year for three years.Project B costs $21,900 and produces cash flows of $12,000 a year for two years.Based on the profitability index,what is your recommendation concerning these projects?

• A)You should accept both projects since both of their PIs are positive.
• B)You should accept Project B because it has the lower PI.
• C)You should reject both projects since both of their PIs are greater than 1.
• D)You should accept project A because its PI exceeds 1.
• E)You can accept either A or B,but not both.

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