Allergia Inc. has the following two mutually exclusive projects: Year Cash Flow (A) Cash Flow (B)...

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Allergia Inc. has the following two mutually exclusive projects: Year Cash Flow (A) Cash Flow (B) -$35,000 0 1 2 3 -$300,000 25,000 60,000 80,000 120,000 16,000 12,000 15,000 13,000 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? (5 marks) b) If you apply the NPV criterion, which investment will you choose? Why? (5 marks) c) If you apply the IRR criterion, which investment will you choose? Why? (5 marks) d) If you apply the profitability index criterion, which investment will you choose? Why? (3 marks) Allergia Inc. has the following two mutually exclusive projects: Year Cash Flow (A) Cash Flow (B) -$35,000 0 1 2 3 -$300,000 25,000 60,000 80,000 120,000 16,000 12,000 15,000 13,000 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? (5 marks) b) If you apply the NPV criterion, which investment will you choose? Why? (5 marks) c) If you apply the IRR criterion, which investment will you choose? Why? (5 marks) d) If you apply the profitability index criterion, which investment will you choose? Why? (3 marks)

Answer rating: 100% (QA)

a Payback Criterion The payback period is the length of time required to recover the initial investment To calculate the payback period we sum the cas... View the full answer