Question: C onsider the following two mutually exclusive projects: Year Cash Flow (A) Cash Flow (B) 0 -$350,000 -$50,000 1 45,000 24,000 2 65,000 22,000 3

Consider the following two mutually exclusive projects:

Year

Cash Flow (A)

Cash Flow (B)

0

-$350,000

-$50,000

1

45,000

24,000

2

65,000

22,000

3

65,000

19,500

4

440,000

14,600

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

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

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

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

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

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