Assignment+5+-+Invesment+criteria PDF

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Assignment 5...

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Assignment 5

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Consider the following two mutually exclusive projects: YearCash Flow (A) Cash Flow (B) 0 $ -350,000 $ -50,000 1 45,000 24,000 2 65,000 22,000 3 65,000 19,500 4 440,000 14,600 Whichever project you choose, if any, you require a 15% return on your investment. Questions: a-1. What is the payback period for each project?

a-2. If you apply the payback criterion, which investment will you choose?

b-1. What is the NPV for each project?

b-2. If you apply the NPV criterion, which investment will you choose?

c-1. What is the IRR for each project? (Use Excel to calculate IRR)

c-2. If you apply the IRR criterion, which investment will you choose?

c-3. Is it appropriate to use IRR in this situation? Why?

d-1. What is the profitability index for each project?

d-2. If you apply the profitability index criterion, which investment will you choose?

d-3. Is it appropriate to use the profitability index in this situation? Why?

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