Problem 9-16 Problems with Profitability Index [LO1, 7] The Angry Bird Corporati

ID: 2622809 • Letter: P

Question

Problem 9-16 Problems with Profitability Index [LO1, 7]

The Angry Bird Corporation is trying to choose between the following two mutually exclusive design projects:

If the required return is 10 percent, what is the profitability index for both projects? (Round your answers to 3 decimal places. (e.g., 32.161))

If the company applies the profitability index decision rule, which project should the firm accept?

What is the NPV for both projects? (Negative amounts should be indicated by a minus sign. Round your answers to 2 decimal places. (e.g., 32.16))

If the company applies the NPV decision rule, which project should it take?

The Angry Bird Corporation is trying to choose between the following two mutually exclusive design projects:

If the required return is 10 percent, what is the profitability index for both projects? (Round your answers to 3 decimal places. (e.g., 32.161))

profitability index for project I = (25900/1.1 + 25900/1.1^2 + 25900/1.1^3)/58,000= 1.111

profitability index for project II = (10000/1.1 + 10000/1.1^2 + 10000/1.1^3)/18,600= 1.337

If the company applies the profitability index decision rule, which project should the firm accept?

What is the NPV for both projects? (Negative amounts should be indicated by a minus sign. Round your answers to 2 decimal places. (e.g., 32.16))

NPV for project I = (25900/1.1 + 25900/1.1^2 + 25900/1.1^3) - 58,000= 6,409.47

NPV for project II = (10000/1.1 + 10000/1.1^2 + 10000/1.1^3) -18,600=$6268.52

If the company applies the NPV decision rule, which project should it take?

a-1

If the required return is 10 percent, what is the profitability index for both projects? (Round your answers to 3 decimal places. (e.g., 32.161))

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