Question
Consider the following two mutually exclusive projects: Year Cash FlowsA Cash FlowsB R R 0 -175 000 -20 000 1 10 000 10 000 2
Consider the following two mutually exclusive projects:
| Year | Cash FlowsA | Cash FlowsB |
| R | R | |
| 0 | -175 000 | -20 000 |
| 1 | 10 000 | 10 000 |
| 2 | 25 000 | 5 000 |
| 3 | 25 000 | 3 000 |
| 4 | 375 000 | 1 000 |
(a) If you apply the payback rule, which investment will you choose? Why? (6)
(b) If you apply the NPV rule, which investment will you choose? Why? (6)
(c) If you apply the IRR rule, which investment will you choose? Why? (6)
(d) Based on your answers in (a) through(c), which project will you finally
choose? Why?
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The Internal Auditing Handbook
Authors: K. H. Spencer Pickett
2nd Edition
0470848634, 978-0470848630
