Consider the following two projects:

Year Cash Flow (ABC) Cash Flow (XYZ)

0 $23,000 $23,000

1 10,490 12,000

2 10,900 9,360

3 10,500 10,400

Instructions:

I. Using company cost of capital 15%, calculate the following investment criteria for both projects:

1. Payback period

2. Internal Rate of Return (IRR)

3. Profitability Index (PI)

4. Net Present Value (NPV)

II. If projects A and B are independent, which one(s) will you choose? Why?

III. If projects A and B are mutually exclusive, which one will you choose? Why?