Question: Consider the following two mutually exclusive projects: Year Cash Flow (A) Cash Flow (B) 0 -$300,000 -$50,000 1 40,000 20,000 2 60,000 20,000 3 60,000
- Consider the following two mutually exclusive projects:
| Year | Cash Flow (A) | Cash Flow (B) |
| 0 | -$300,000 | -$50,000 |
| 1 | 40,000 | 20,000 |
| 2 | 60,000 | 20,000 |
| 3 | 60,000 | 20,000 |
| 4 | 400,000 | 10,000 |
Whichever project you choose, if any, you require a return of 10 percent on your investment.
- If you apply the payback criterion, which investment will you choose? Why?
- If you apply the discounted payback criterion, which investment will you choose? Why?
- If you apply the NPV criterion, which investment will you choose? Why?
- If you apply the IRR criterion, which investment will you choose? Why?
- If you apply the profitability index criterion, which investment will you choose? Why?
- Based on your answers in (a) through (e), which project will you finally choose? Why?
Step by Step Solution
There are 3 Steps involved in it
1 Expert Approved Answer
Step: 1 Unlock
Question Has Been Solved by an Expert!
Get step-by-step solutions from verified subject matter experts
Step: 2 Unlock
Step: 3 Unlock
Study Help