Question: Consider the following mutually exclusive projects, A and B: Year Cash Flow (A) Cash Flow (B) 0 $ (235,000) $ (47,000) 1 $ 29,000 $
Consider the following mutually exclusive projects, A and B:
| Year | Cash Flow (A) | Cash Flow (B) |
| 0 | $ (235,000) | $ (47,000) |
| 1 | $ 29,000 | $ 28,700 |
| 2 | $ 45,000 | $ 19,900 |
| 3 | $ 51,000 | $ 17,300 |
| 4 | $ 325,000 | $ 16,200 |
The company requires a 13% return on investment for any project undertaken. Evaluate each of the alternatives using the following:
1. What is the payback of each of the projects? Based only on payback, which alternative(s) would you choose? Why?
2. What is the net present value (NPV) of the projects? Based only on NPV, which alternative(s) would you choose? Why?
3. What is the IRR of each project? Based only on IRR, which alternative(s) would you choose? Why?
4. Apply the profitability index criterion. Based only on profitability index, which alternative(s) would you choose? Why?
5. Based on you answers in part 1-4, which project (if either) would you choose? Why?
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