Project Q has an initial cost of $257,412 and projected cash flows of $123,300 in Year 1 and $180,300 in Year 2.Project R has an initial cost of $345,000 and projected cash flows of $184,500 in Year 1 and $230,600 in Year 2.The discount rate is 12.2 percent and the projects are independent.Which project(s),if either,should be accepted based on its profitability index value?
A)Accept both Project Q and R
B)Reject both Project Q and R
C)Accept Project Q and reject Project R
D)Accept Project R and reject Project Q
E)Accept either Project R or Project Q,but not both

Question

Quizplus · Accepted Answer

PI_Q = ($123,300 / 1.122 + $180,300 / 1.122²)/ $257,412 = .98; Reject PI_R = ($184,500 / 1.122 + $230,600 / 1.122²)/ $345,000 = 1.01; Accept

Project Q Has an Initial Cost of $257,412 and Projected