Question: Case 2. (25 points) Consider the following three projects: Year Beta Gamma 0 Alpha -1000 600 -100 -500 200 1 -200 2 400 100 250

Case 2. (25 points) Consider the following three projects: Year Beta

Case 2. (25 points) Consider the following three projects: Year Beta Gamma 0 Alpha -1000 600 -100 -500 200 1 -200 2 400 100 250 3 100 150 250 4 50 100 200 5 0 100 100 6 0 100 -100 The cost of capital for the company is 12%. 1. If you apply the payback criterion, which project will you choose? Why? (5 points) 2. If you apply the NPV criterion, which project will you choose? Why? (5 points) 3. If you apply the IRR criterion, which project will you choose? Why? (5 points) 4. If you apply the profitability index criterion, which project will you choose? Why? (5 points) 5. Based on your answers in (1) through (4), which project will you finally choose? Why? (5 points)

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