If you apply the payback criterion, which investment will you choose? Why? If you apply the discounted payback criterion, which investment will you choose? Why? If you apply the NPV criterion, which investment will you choose? Why?
If you apply the payback criterion, which investment will you choose? Why? If you apply the discounted payback criterion, which investment will you choose? Why? If you apply the NPV criterion, which investment will you choose? Why?
Intermediate Financial Management (MindTap Course List)
13th Edition
ISBN:9781337395083
Author:Eugene F. Brigham, Phillip R. Daves
Publisher:Eugene F. Brigham, Phillip R. Daves
Chapter12: Capital Budgeting: Decision Criteria
Section: Chapter Questions
Problem 13P
Related questions
Question
17: Consider the following 2 mutually exclusive projects:
Year |
Cash flow A |
|
|
|
Cash Flow B |
|
0 |
-291000 |
|
|
|
-41600 |
|
1 |
37000 |
|
|
|
20000 |
|
2 |
55000 |
|
|
|
17600 |
|
3 |
55000 |
|
|
|
17200 |
|
4 |
366000 |
|
|
|
14000 |
|
Whichever project you choose, if any, you require a return of 11% on your investment.
- If you apply the payback criterion, which investment will you choose? Why?
- If you apply the discounted payback criterion, which investment will you choose? Why?
- If you apply the NPV criterion, which investment will you choose? Why?
- If you apply the
IRR criterion, which investment will you choose? Why? - If you apply the profitability index criterion, which investment will you choose? Why?
- Based on your answers in parts A through E, which project will you finally choose? Why?
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