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We have two investment projects A&B. Both projects cost $250, and we require a 15% return of the two investments.
Year A B
1 $100 $100
2 $100 $200
3 $100 0
4 $100 0
a) Based on the payback period rule, which project would you pick? Explain.
b) Based on the NPV rule, which project would you pick? Explain.
c) Do (a) and (b) give you the same conclusion? If not, why? Please elaborate.
d) What other methods can you use to evaluate proposed investments? Please explain.
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