Consider the following two mutually exclusive projects:

Whichever project you choose, if any. you require a 15 percent return on your investment.

a. If you apply the payback criterion, which investment will you choose? Why?

b. If you apply the discounted payback criterion, which investment will you choose? Why?

c. If you apply the NPV criterion. which investment will you choose? Why?

d. If you apply the IRR criterion. which investment will you choose? Why?

e. lf you apply the profitability index criterion. which investment will you choose? Why?

f. Based on your answers in (a) through (e). which project will you finally choose? Why?

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Year Cash Flow (A) Cash Flow (B) 0 1 2 3 4 -$350,000 45,000 65,000 65,000 440,000 -$50,000 24,000 22,000 19,500 14,600 Year Cash Flow (A) Cash Flow (B) 0 1 2 3 4 -$350,000 45,000 65,000 65,000 440,000 -$50,000 24,000 22,000 19,500 14,600

Answer rating: 100% (QA)

a The payback period of a project can be defined as the time period required recovering the initial investment of the project It does not consider the time value of money which means all cash flows ha... View the full answer