Webley Corp. is considering two expansion options, but does not have enough capi

Question

Webley Corp. is considering two expansion options, but does not have enough capital to undertake the, Project W requires an investment of $100,000 and has an NPV of $10,000. Project D requires an investment of $80,000 and has an NPV of $8,200. If Webley use the profitability index to decide, it should: A) Choose D because it has higher profitability index B) Chose W because it has higher profitability index C) Chose D because it has a lower profitability index D) Chose W because it has a lower profitability index

Explanation / Answer

NPV of Project W = (100,000 +10,000)/100,000 =1.1 NPV of Project D = (80,000+8,200)/80,000 =1.1025 B) Chose W because it has higher profitability index

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