10-10B. (Size disparity ranking problem) The Unk’s Farms Corporation is considering purchasing one of two fertilizer-herbicides for the upcoming year. The more expensive of the two is the better and...

10-10B. (Size disparity ranking problem) The Unk’s Farms Corporation is considering purchasing one of two fertilizer-herbicides for the upcoming year. The more expensive of the two is the better and will produce a higher yield. Assume these projects are mutually exclusive and that the required rate of return is 10 percent. Given the following after-tax net cash flows:


YEAR PROJECT A PROJECT B
0 -$650 -$4,000
1 800 5,500


a. Calculate the net present value.
b. Calculate the profitability index.
c. Calculate the internal rate of return.
d. If there is no capital-rationing constraint, which project should be selected? If there is a capital-rationing constraint, how should the decision be made?