Comparing Investment Criteria [L01, 2, 3, 5, 7] consider the following two mutually exclusive projects.

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

1. If you apply the payback criterion, which investment will you choose? Why?
2. If you apply the discounted payback criterion, which investment will you choose? Why?
3. If you apply the NPV criterion, which investment will you choose? Why?
4. If you apply the IRR criterion, which investment will you choose? Why?
5. If you apply the profitability index criterion, which investment will you choose? Why?
6. Based on your answers in (a) through (c), which project will you finally choose? Why?

Chapter 9 Q17
Input area:
Discounted payback (A)
Discounted payback (B)
Discounted payback criterion, implies accept
because it pays back sooner.
NPV (A)
NPV (B)
NPV criterion implies accept
because it has a higher NPV.
IRR (A)
IRR (B)
IRR decision rule implies accept
because its IRR is greater.
PI (A)
PI (B)
Profitability index criterion implies accept
because its PI is larger.
The only decision rule that can rank mutually exclusive projects
is NPV: therefore you should accept