Consider the following two mutually exclusive projects: Year _________Cash Flow (A) ____________Cash Flow (B) 0 ..................... -$365,000
Question:
Consider the following two mutually exclusive projects:
Year _________Cash Flow (A) ____________Cash Flow (B)
0 ..................... -$365,000 ........................ -$40,000
1 ......................... 38,000 ........................... 20,300
2 ......................... 47,000 ........................... 15,200
3 ......................... 62,000 ........................... 14,100
4 ....................... 455,000 ............................ 11,200
Whichever project you choose, if any, you require a return of 13 percent on your investment.
a. If you apply the payback criterion, which investment will you choose? Why?
b. If you apply the NPV criterion, which investment will you choose? Why?
c. If you apply the IRR criterion, which investment will you choose? Why?
d. If you apply the profitability index criterion, which investment will you choose? Why?
e. Based on your answers in (a) through (d), which project will you finally choose? Why?
Step by Step Answer:
Essentials of Corporate Finance
ISBN: 978-0078034756
8th edition
Authors: Stephen Ross, Randolph Westerfield, Bradford Jordan