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View History Bookmarks People Window Help tps://newconnect.mheducation.com/flow/connect.htm Homework Help Save& Exit Submit Check my work Yokam Company is considering two alternative projects. Project 1 requires an initial investment of $ present value of cash flows of $6 million. 1. Compute the profitability index for each project. present value of cash fows of s2.500,000. Project 2 requires an initial Investment of $5 million and has a Choose Profitability index Project 1 Project 2 2. Based on the profitability index, which project should the company prefer? O Project 1 Project 2 Reference links Prex 10000 HI Next 0 0 F3 F6 F7 FS

Explanation / Answer

The correct answer is Project 1.

This is because it has a higher Profitability Index than Project 2.

Numerator / Denominator = Profitability Index Present Value of Cash Inflows / Present Value of Cash Outflows = Profitability Index Project 1 2,500,000 / 520,000 = 4.81 Project 2 6,000,000 / 5,000,000 = 1.20

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