Consider the following two projects:

YearCash Flow (ABC)Cash Flow (XYZ)

0 46,00046,000

1 20,98024,000

2 21,80018,720

3 21,00020,800

Whichever project you choose, if any, you require a return of 15 percent on your investment.

Instructions:

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

a. Payback period (5 points)

b. Net Present Value (NPV)(5 points)

c. Internal Rate of Return (IRR) (5 points)

d. Profitability Index (PI) (5 points)

2. If projects A and B are independent, which one(s) will you choose? Why? (5 points)

3. If projects A and B are mutually exclusive, which one will you choose? Why? (5 points)