The Klingon Sausage Corporation is trying to choose between the following two projects: Year Cash Flow (Project I) Cash Flow (Project II) 0 -$363,000 -$165,000 1 184,800 99,600 2 184,800 99,600 3 184,800 99,600 The discount rate of both projects is 8%. Klingon’s manager believes the company has sufficient resources so that the two projects should not be treated as mutually exclusive. Which project should be taken based on the profitability index? A. Project I should be accepted and project II should be rejected. B. None of the projects should be accepted. C. Project I should be rejected and project II should be accepted. D. Both projects should be accepted.

The Klingon Sausage Corporation is trying to choose between the following two projects: Year Cash Flow (Project I) Cash Flow (Project II) 0 -$363,000 -$165,000 1 184,800 99,600 2 184,800 99,600 3 184,800 99,600 The discount rate of both projects is 8%. Klingon’s manager believes the company has sufficient resources so that the two projects should not be treated as mutually exclusive. Which project should be taken based on the profitability index? A. Project I should be accepted and project II should be rejected. B. None of the projects should be accepted. C. Project I should be rejected and project II should be accepted. D. Both projects should be accepted.

Principles of Accounting Volume 2

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ISBN:9781947172609

Author:OpenStax

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Chapter11: Capital Budgeting Decisions

Section: Chapter Questions

Problem 6PB: There are two projects under consideration by the Rainbow factory. Each of the projects will require...

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Year	Cash Flow (Project I)	Cash Flow (Project II)
0	-$363,000	-$165,000
1	184,800	99,600
2	184,800	99,600
3	184,800	99,600

	A.	Project I should be accepted and project II should be rejected.
	B.	None of the projects should be accepted.
	C.	Project I should be rejected and project II should be accepted.
	D.	Both projects should be accepted.