Question: Consider the following two mutually exclusive projects: Year Cash flow (A) Cash flow (B) 0 -$245000 -$53000 1 34000 31900 2 49000 21800 3 51000

Consider the following two mutually exclusive projects:

Year Cash flow (A) Cash flow (B)
0 -$245000 -$53000
1 34000 31900
2 49000 21800
3 51000 17300
4 325000 16200

Whichever project you choose, if any, you require a return of 13% on your investment.

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

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

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