Question
. 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
. 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% return on your investment.
If you applied the payback criterion, which investment would you choose? Why?
If you apply the discounted payback criterion, which investment will you choose? Why?
If you apply the NPV criterion, which investment would you choose? Why?
If you apply the IRR criterion, which investment would you choose? why?
If you apply the probability index criterion, which investment would you choose ? why?
Based on your answers in (a) through (e), which project will you finally choose ? why ?
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Handbook Of The Fundamentals Of Financial Decision Making
Authors: Leonard C MacLean, William T Ziemba
1st Edition
9814417343, 978-9814417341
