Consider the following two mutually exclusive projects:

Year Cash Flow (Project A) Cash Flow (Project B)

0 -625,000,000 -480,000,000

1 65,000,000 40,000,000

2 120,000,000 82,000,000

3 183,000,000 157,000,000

4 240,000,000 201,000,000

5 240,000,000 185,000,000

6 160,000,000 120,000,000

7 95,000,000 90,000,000

8 45,000,000 40,000,000

The required return is 10% for both projects.

(a) Which project will you choose if you apply the NPV criterion? Why? Show your calculations. (4 marks)

(b) Which project will you choose if you apply the payback criterion? Why? Show your calculations. (3 marks)

(c) Which project will you choose if you apply the IRR criterion? Briefly explain your answer. (4 marks)

(d) How are the decisions based on NPV and IRR criterion related? (1 marks)

(e) Based on the above answers, which project will you finally choose? Briefly explain. (2 marks)