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Problem 9-17 Comparing Investment Criteria [LO1, 2, 3, 5, 7] Consider the following two mutually exclusive projects: Year Cash Flow (A) Cash Flow (B) 0

Problem 9-17 Comparing Investment Criteria [LO1, 2, 3, 5, 7]

Consider the following two mutually exclusive projects:

Year Cash Flow (A) Cash Flow (B)
0 $ 346,000 $ 48,000
1 49,000 24,400
2 69,000 22,400
3 69,000 19,900
4 444,000 15,000

Whichever project you choose, if any, you require a 16 percent return on your investment.

a-1

What is the payback period for each project? (Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16.)

Payback period
Project A years
Project B years

a-2 If you apply the payback criterion, which investment will you choose?
Project A
Project B

b-1

What is the discounted payback period for each project? (Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16.)

Discounted payback period
Project A years
Project B years

b-2 If you apply the discounted payback criterion, which investment will you choose?
Project A
Project B

c-1

What is the NPV for each project? (Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16.)

NPV
Project A $
Project B $

c-2 If you apply the NPV criterion, which investment will you choose?
Project A
Project B

d-1

What is the IRR for each project? (Do not round intermediate calculations. Enter your answers as a percent rounded to 2 decimal places, e.g., 32.16.)

IRR
Project A %
Project B %

d-2 If you apply the IRR criterion, which investment will you choose?
Project A
Project B

e-1

What is the profitability index for each project? (Do not round intermediate calculations and round your answers to 3 decimal places, e.g., 32.161.)

Profitability index
Project A
Project B

e-2 If you apply the profitability index criterion, which investment will you choose?
Project A
Project B
f. Based on your answers in (a) through (e), which project will you finally choose?
Project A or Project B?

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