Miller's is considering a 2-year expansion project that will require $398,000 up front.The project will produce cash flows of $361,000 and $114,000 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? Should it be accepted if the discount rate is 17 percent?
A)Yes;Yes,because the PI is 1.2
B)Yes;No,because the PI is 0.98
C)No;Yes,because the PI is 0.98
D)No;No,because the PI is 1.2
E)Yes;Yes,because the PI is 1.19

Question

Quizplus · Accepted Answer

PI_12% = ($361,000 / 1.12 + $114,000 / 1.12²)/ $398,000 = 1.04;Accept PI_16% = ($361,000 / 1.17 + $114,000 / 1.17²)/ $398,000 = 0.98;Reject

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