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Consider the following two mutually exclusive projects Year Cash Flow (A) Cash Flow (B) 0 $ 359,000 $ 45,500 1 36,000 23,100 2 56,000 21,100
| Consider the following two mutually exclusive projects |
| Year | Cash Flow (A) | Cash Flow (B) |
|---|---|---|
| 0 | −$ 359,000 | −$ 45,500 |
| 1 | 36,000 | 23,100 |
| 2 | 56,000 | 21,100 |
| 3 | 56,000 | 18,600 |
| 4 | 431,000 | 13,700 |
| Whichever project you choose, if any, you require a return of 14 percent on your investment. |
| a-1. | What is the payback period for each project? |
| a-2. | If you apply the payback criterion, which investment will you choose? |
| b-1. | What is the discounted payback period for each project? |
| b-2. | If you apply the discounted payback criterion, which investment will you choose? |
| c-1. | What is the NPV for each project? |
| c-2. | If you apply the NPV criterion, which investment will you choose? |
| d-1. | What is the IRR for each project? |
| d-2. | If you apply the IRR criterion, which investment will you choose |
| e-1. | What is the profitability index for each project? |
| e-2. | If you apply the profitability index criterion, which investment will you choose? |
Based on your answers in (a) through (e), which project will you finally choose?
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Financial Management Theory and Practice
Authors: Eugene F. Brigham, Michael C. Ehrhardt
15th edition
130563229X, 978-1305632301, 1305632303, 978-0357685877, 978-1305886902, 1305886909, 978-1305632295
