Question
Considering the following two mutually exclusive projects: Year Cash Flow (A) Cash Flow (B) 0 -$740,000 -$80,000 1 95,000 60,000 2 180,000 25,000 3 250,000
Considering the following two mutually exclusive projects:
Year Cash Flow (A) Cash Flow (B)
0 -$740,000 -$80,000
1 95,000 60,000
2 180,000 25,000
3 250,000 10,000
4 535,000 2,000
Whichever project you choose, if any, you require a 7 percent return on your investment.
- If you apply the payback criterion, which investment will you choose? Why?
- If you apply the discounted payback criterion, which investment will you choose? Why?
- If you apply the NPV criterion, which investment will you choose? Why?
- If you apply the IRR criterion, which investment will you choose? Why?
- If you apply the profitability index criterion, which investment will you choose? Why?
- Based on your answers in (a) through (e), which project will you finally choose? Why?
- Calculate the crossover rate. Why is there a conflict between project A and project B (explain in
- terms of crossover rate)?
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Income Tax Fundamentals 2013
Authors: Gerald E. Whittenburg, Martha Altus Buller, Steven L Gill
31st Edition
1111972516, 978-1285586618, 1285586611, 978-1285613109, 978-1111972516
