calculation of the PP, NPV, and IRR of the following projects (assuming a 14% required return and critical acceptance level of 3 years)

PPA = 2.89 years

PPB = 3.26 years

PPC = 2.33 years

PPD = 3.39 years

IRRA = 9.99%

IRRB = 15.40%

IRRC = 17.07%

IRRD = 12.94%

NPVA = -$71,051

NPVB = $38,622

NPVC = $28,259

NPVD = -$14,437

IF INDEPENDENT

Choose Projects B and C as both have positive NPVs. While the PP exceeds T for project B, unless the company has significant financial problems and/or is severely concerned about the project lasting the four years. NPV is the best decision rule, so when the decision rules give conflicting results, go with NPV.

IF MUTUALLY EXCLUSIVE

Choose Project B as it has the highest NPV. The higher IRR for project C is irrelevant and is caused by the different sizes of the projects. Again, when there are conflicts among the rules always follow NPV.

In the problem above, identify a pair of projects that could suffer from the size problem, but not a reinvestment rate problem. Next, identify a pair of projects that could suffer from the reinvestment rate problem, but not the size problem.