NPV (Net Present Value) versus PI (Profitability Index)
Consider the following two mutually exclusive projects available to Global Investments, Inc.:
The appropriate discount rate for the projects is 10%. Global Investments chose to undertake project A. At a luncheon for shareholders, the manager of a pension fund that owns a substantial amount of the firm’s stock asks you why the firm chose project A instead of project B when project B has a higher PI.
How would you, the CFO, justify your firm’s action? Are there any circumstances under which Global Investments should choose project B?
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The post NPV (Net Present Value) Versus PI (Profitability Index) Consider The Following Two Mutually Exclusive Projects Available To Global Investments, Inc.: Projects C0 C1 C2 PI NPV A -$1000 $1000 $500 1.32 $322 B -500 500 400 1.57 285 The Appropriate Discount R appeared first on Star Grade Essays.