A Firm Is Considering Two Mutually Exclusive Projects with the Identical

Essay

A firm is considering two mutually exclusive projects with the identical initial cost of $100,000 and the revenues shown in the table. Compute the net present value and the profitability index of each project. Which measure should the firm use to determine which project to undertake? Which project should the firm undertake, if any, assuming 5 percent discount rate?
$$\begin{array} { | l | l | l | } \hline \text { Period } & \text { Project A } & \text { Project B } \\\hline 1 & 40,000 & 20,000 \\\hline 2 & 30,000 & 20,000 \\\hline 3 & 20,000 & 20,000 \\\hline 4 & - 20,000 & 30,000 \\\hline 5 & 30,000 & 30,000 \\\hline\end{array}$$