Question: 3. Considering the following two mutually exclusive projects: Year Cash Flow (A) 0 -$750,000 1 105,000 2 175,000 3 250,000 4 545,000 Cash Flow (B)

3. Considering the following two mutually exclusive projects: Year Cash Flow (A) 0 -$750,000 1 105,000 2 175,000 3 250,000 4 545,000 Cash Flow (B) -$75,000 70,000 15,000 10,000 2,000 Whichever project you choose, if any, you require a 9 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. If 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? g. Calculate the crossover rate. Why is there a conflict between project A and project B (explain in terms of crossover rate)?

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