Consider the following two mutually exclusive projects: Cash Flow (A) $-300,000 20,000 50,000 50,000 Cash Flow (B) $-40,000 19,000 12,000 18,000 10,500 Year 2 3 4 390,000 Whichever project you choose, if any, you require 15 percent 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 IRR criterion, which investment will you choose? Why? d) If you apply the profitability index, which investment will you choose? Why?
Consider the following two mutually exclusive projects: Cash Flow (A) $-300,000 20,000 50,000 50,000 Cash Flow (B) $-40,000 19,000 12,000 18,000 10,500 Year 2 3 4 390,000 Whichever project you choose, if any, you require 15 percent 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 IRR criterion, which investment will you choose? Why? d) If you apply the profitability index, which investment will you choose? Why?
Financial Management: Theory & Practice
16th Edition
ISBN:9781337909730
Author:Brigham
Publisher:Brigham
Chapter10: The Basics Of Capital Budgeting: Evaluating Cash Flows
Section: Chapter Questions
Problem 23SP: Start with the partial model in the file Ch10 P23 Build a Model.xlsx on the textbooks Web site....
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