Question: . 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

. 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% return on your investment.

If you applied the payback criterion, which investment would you choose? Why?

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

If you apply the NPV criterion, which investment would you choose? Why?

If you apply the IRR criterion, which investment would you choose? why?

If you apply the probability index criterion, which investment would you choose ? why?

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

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