Question: Consider two mutually exclusive projects with the following expected cash flows : Cash Flows Year Project X -10,000 4,000 8,000 6,000 Project Y -20,000 4,000

Consider two mutually exclusive projects with the following expected cash flows : Cash Flows Year

Project X -10,000 4,000 8,000 6,000

Project Y -20,000 4,000 12,000 16,000

Whichever project you choose, if any, you require a return of 11% on your investment.

a. If you apply the discounted payback criterion, which project will you choose?

b. If you apply the NPV criterion, which project will you choose? Why? (7.5 marks)

c. Based on your answers in (a) and (b), which project will you finally choose? Why ? (i.e clearly explain the strengths and the weaknesses of each method therefore the reason(s) for choosing the project based on the chosen method)

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