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Question(s) / Instruction(s):

You are considering two independent projects both of which have been assigned a discount rate of 15 percent. Based on the profitability index, what is your recommendation concerning these projects?

      Project (A)                    Project (B)

Year       Cash Flow         Year         Cash Flow

0             -$46,000          0     -$50,000

1              $32,000          1      $18,000

2              $27,000          2      $54,000

A.            You should accept project B and reject project A.

B.            You should accept both projects.

C.            You should reject both projects.

D.            You should accept project A and reject project B.

E.            You should accept project A and be indifferent to project B.

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