A Company Is Considering Two Projects, Project a and Project

Essay

A company is considering two projects, Project A and Project B. The following information is available for each project:
$\begin{array} { l r r } &{ \text { Project A } } &{ \text { Project B } } \\\text { Investment } & \$ 2,500,000 & \$ 2,000,000 \\\text { Net present value of cash flows } &\$ 900,000 & \$ 800,000\end{array}$
Calculate the profitability index for each project. Based on the profitability index, which project should the company pursue and why?