Apply the payback criterion for choosing the investment

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Reference no: EM131770671

Question: Consider the following two mutually exclusive projects:

Year	Cash Flow (A)	Cash Flow (B)
0	-$455,000	-$65,000
1	58,000	31,000
2	85,000	28,000
3	85,000	25,500
4	572,000	19,000

Whichever project you choose, if any, you require a return of 11 percent 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 chose? 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: EM131770671

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