Consider the following two mutually exclusive projects:

Year Cash Flow (A) Cash Flow (B)

1 -$300,000 -$63,000

2 $40,000 $28,000

3 $85,000 $32,000

4 $180,000 $12,500

5 $440,000 $18,600

Whichever project you choose, if any, you require 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 profitability index criterion, which investment will you choose? Why?

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

f) What is the cross-over rate for these two mutually exclusive projects?