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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 return of 16 percent on your investment. |
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.) |
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.) |
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? |
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