Problem 5-14 Investment criteria

Consider the following two projects:

Cash flows	Project A			Project B
C0	$	180		$	180
C1		70			88
C2		70			88
C3		70			88
C4		70

1. a. If the opportunity cost of capital is 10%, which of these two projects would you accept (A, B, or both)?
2. b. Suppose that you can choose only one of these two projects. Which would you choose? The discount rate is still 10%.
3. c. Which one would you choose if the cost of capital is 15%?
4. d. What is the payback period of each project?
5. e. Is the project with the shortest payback period also the one with the highest NPV?
6. f. What are the internal rates of return on the two projects?
7. g. Does the IRR rule in this case give the same answer as NPV?
8. h-1. If the opportunity cost of capital is 10%, what is the profitability index for each project?
9. h-2. Is the project with the highest profitability index also the one with the highest NPV?
10. h-3. Which measure should you use to choose between the projects?