Comparing Investment Criteria [LO1, 2, 3, 5, 7) Consider the following mutually exclusive projects:

year Cash Flow (B) Cash Flow (A)

0. -$300,000 -$40,000

1. -20,000. -19,000

2. -50,000 -12,000

3. -50,000 -18,000

4. -390,000 -10,500

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?

Comparing Investment Criteria (L01, 2, 3, 5, 7] Consider the following two mutually exclusive projects: Year 0 1 Cash Flow (A) $300,000 20,000 50,000 50,000 390,000 Cash Flow (B) S40,000 19,000 12,000 18,000 10,500 2 3 4 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 appiy 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