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Apply the payback criterion

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Consider the following two mutually exclusive projects, you require a 15 percent return on your investment:

YEAR Cash Flow A Cash Flow (B)

0 -170,000 -18,000

1 10,000 10,000

2 25,000 6,000

3 25,000 10,000

4 380,000 8,000

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 IRR criterion, which investment will you choose? Why?

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

f) Based on your answers in (a) through (e), which project will you finally choose? Why?

Reference no: EM132544469

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