Anne Is Considering Two Independent Projects with 2-Year Lives

Multiple Choice

Anne is considering two independent projects with 2-year lives.Both projects have been assigned a discount rate of 13 percent.She has sufficient funds to finance one or both projects.Project A costs $38,500 and has cash flows of $19,400 and $28,700 for Years 1 and 2,respectively.Project B costs $41,000,and has cash flows of $25,000 and $22,000 for Years 1 and 2,respectively.Which project,or projects,if either,should you accept based on the profitability index method and what is the correct reason for that decision?

A) You should accept both projects since both of their PIs are positive.
B) You should accept Project A since it has the higher PI and you can only select one project.
C) You should accept both projects since both of their PIs are greater than 1.
D) You should only accept Project A since it is the only project with a PI greater than 1.
E) Neither project is acceptable.