Consider the following two mutually exclusive projects: Year Cash Flow (A) Cash Flow (B) 0 $455,000 $65,000
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Question:
Consider the following two mutually exclusive projects:
| Year | Cash Flow (A) | Cash Flow (B) |
| 0 | $455,000 | $65,000 |
| 1 | 58,000 | 31,000 |
| 2 | 85,000 | 28,000 |
| 3 | 85,000 | 25,000 |
| 4 | 572,000 | 19,000 |
Whichever project you choose, if any, you require a return of 11 percent on your investment.
- If you apply the payback criterion, which investment will you choose? Why?
- If you apply the discounted payback criterion, which investment will you choose? Why?
- If you apply the NPV criterion, which investment will you choose? Why?
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