Question
17. Comparing Investment Criteria [LO1, 2, 3, 5, 7] Consider the following two mutually exclusive projects: Year Cash Flow (A) Cash Flow (B) 0 -350,000
17. Comparing Investment Criteria [LO1, 2, 3, 5, 7] Consider the following two mutually exclusive projects:
| Year | Cash Flow (A) | Cash Flow (B) |
| 0 | -350,000 | -50,000 |
| 1 | 45,000 | 24,000 |
| 2 | 65,000 | 22,000 |
| 3 | 65,000 | 19,500 |
| 4 | 440,000 | 14,600 |
Whichever project you choose, if any, you require a 15 percent 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 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?
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Financial Institutions Management A Risk Management Approach
Authors: Anthony Saunders, Marcia Millon Cornett
9th edition
1259717771, 1259717772, 9781260048186, 1260048187, 978-1259717772
