Miller's is considering a 2-year expansion project that will require $410,000 up front.The project will produce cash flows of $358,000 and $98,000 for Years 1 and 2,respectively.Based on the profitability index (PI)rule,should the project be accepted if the discount rate is 12 percent? Why or why not?
A)Yes;because the PI is 1.03
B)Yes;because the PI is .97
C)Yes;because the PI is .94
D)No;because the PI is 1.03
E)No;because the PI is .97

Question

Quizplus · Accepted Answer

PI = ($358,000/1.12 + $98,000/1.12²)/$410,000 = .97

Miller's Is Considering a 2-Year Expansion Project That Will Require