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Item 5

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Consider the following two mutually exclusive projects:

Year	Cash Flow (A)				Cash Flow (B)
0	$	450,000			$	80,000
1		90,000				34,000
2		110,000				32,000
3		75,000				29,500
4		450,000				24,600

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

a-1. What is the payback period for each project? (Round the final answers to 2 decimal places.)

	Payback Period
Project A	years
Project B	years

a-2. If you apply the payback criterion, which investment will you choose?

• Project A

• Project B

b-1. What is the discounted payback period for each project? (Do not round intermediate calculations. Round the final answers to 2 decimal places.)

	Discounted Payback Period
Project A	years
Project B	years

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

• Project A

• Project B

c-1. What is the NPV for each project? (Do not round intermediate calculations. Round the final answers to 2 decimal places. Omit $ sign in your response.)

	NPV
Project A	$
Project B	$

c-2. If you apply the NPV criterion, which investment will you choose?

• Project A

• Project B

d-1. What is the IRR for each project? (Round the final answers to 2 decimal places.)

	IRR
Project A	%
Project B	%

d-2. If you apply the IRR criterion, which investment will you choose?

• Project A

• Project B

e-1. What is the profitability index for each project? (Do not round intermediate calculation. Round the final answers to 3 decimal places.)

	Profitability Index
Project A
Project B

e-2. If you apply the profitability index criterion, which investment will you choose?

• Project A

• Project B

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

• Project A

• Project B