You are considering the following two mutually exclusive projects. Both projects will be depreciated using straight-line depreciation to a zero book value over the life of the project. Neither project has any salvage value. Should you accept or reject these projects based on the profitability index?
A)accept Project A and reject Project B
B)reject Project A and accept Project B
C)accept both Projects A and B
D)reject both Projects A and B
E)You cannot make this decision based on the profitability index.

Question

You are considering the following two mutually exclusive projects. Both projects will be depreciated using straight-line depreciation to a zero book value over the life of the project. Neither project has any salvage value.  Should you accept or reject these projects based on the profitability index?
A)accept Project A and reject Project B 
B)reject Project A and accept Project B 
C)accept both Projects A and B 
D)reject both Projects A and B 
E)You cannot make this decision based on the profitability index.

Quizplus · Accepted Answer

Because these are mutually exclusive projects, the PI rule should not be applied.

You Are Considering the Following Two Mutually Exclusive Projects