Question

Consider the following two mutually exclusive projects:

  

Year Cash Flow

(A) Cash Flow

(B)

0 –$ 341,000 –$ 51,000   

1 54,000 24,900   

2 74,000 22,900   

3 74,000 20,400   

4 449,000 15,500   

Whichever project you choose, if any, you require a return of 15 percent 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.)

  

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.)

  

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.)

  

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.)

  

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?

  

Answer 1

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