Question: Consider the following two mutually exclusive projects: Year Cash Flows A Cash Flows B R R 0 -175 000 -20 000 1 10 000 10

Consider the following two mutually exclusive projects: Year Cash Flows A Cash Flows B R R 0 -175 000 -20 000 1 10 000 10 000 2 25 000 5 000 3 25 000 3 000 4 375 000 1 000 You require a 15 per cent return on your investment. (a) If you apply the payback rule, which investment will you choose? Why? (6) (b) If you apply the NPV rule, which investment will you choose? Why? (6) (c) If you apply the IRR rule, which investment will you choose? Why? (6) (d) Based on your answers in (a) through (c), which project will you finally choose? Why

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