Mutually exclusive projects

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Consider the following two mutually exclusive projects, project A and project B:

Year Cash Flow ( A) Cash Flow ( B)

0-$415,000-$3,500

149,0001,920

257,0001,390

374,0001,420

4530,0001,050

Whichever project you choose, if any, you require a 13% return on your investment.

a. If you apply the payback criterion, which investment will you choose? Why?

b. If you apply the NPV criterion, which investment will you choose? Why?

c. If you apply the profitability index criterion, which investment will you choose? Why?

d. Based on your answers in (a) through (c), which project will you finally choose? Why?

Reference no: EM131151898

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