Question
Year Cash Flow (A) Cash Flow (B) 0 -$75,000 -$125,000 1 $33,000 $29,000 2 $36,000 $32,000 3 $19,000 $35,000 4 $9,000 $240,000 Q1. Which project
| Year | Cash Flow (A) | Cash Flow (B) |
| 0 | -$75,000 | -$125,000 |
| 1 | $33,000 | $29,000 |
| 2 | $36,000 | $32,000 |
| 3 | $19,000 | $35,000 |
| 4 | $9,000 | $240,000 |
Q1. Which project should be chosen according to the payback period method?
Q2. Assume that the 0-year payments are installation costs, and the remaining entries are net incomes for the next four years. Calculate the AAR for each project. Which project should be chosen according to the average accounting return method?
Q3. Using the data from Q1, calculate the IRR for each project. Which project should be chosen according to the IRR method?
Q4. Using the data from Q1 and a discount rate of 6%, calculate the NPV for each project in Q1. Which project should be chosen according to the NPV method?
Q5. We agree that the NPV method is theoretically the best. Which of the other methods have merit to be used to get an idea of which projects to choose?
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Ethics In Finance
Authors: John R. Boatright
3rd Edition
1118615824, 978-1118615829
