Question: Consider the following two mutually exclusive projects: Year Cash Flow A Cash Flow B 0 -$300,000 -$40,000 1 20,000 19,000 2 50,000 12,000 3 50,000

Consider the following two mutually exclusive projects:

Year Cash Flow A Cash Flow B
0 -$300,000 -$40,000
1 20,000 19,000
2 50,000 12,000
3 50,000 18,000
4 390,000 10,500

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

(a) If you apply the payback criterion, which investment will you choose? Why?

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

(c) If you apply the NPV criterion, which investment will you choose? Why?

(d) If you apply the IRR criterion, which investment will you choose? Why?

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