Comparing Investment Criteria [LO1, 2, 3, 5, 7] Consider the following two mutually exclusive projects: Year Cash Flow (A) Cash Flow (B) -$300,000 -$40,000 1 20,000 19,000 50,000 12,000 3 50,000 18,000 390,000 10,500 Whichever project you choose, if any, you require a 15 percent return on your investment. a. If you apply the payback criterion, which investment will you choose? Why? b. If you apply the discounted payback criterion, which investment will you choose? Why?

FINANCIAL ACCOUNTING
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Chapter1: Financial Statements And Business Decisions
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17. Comparing Investment Criteria [LO1, 2, 3,5, 7] Consider the following two
mutually exclusive projects:
Year
Cash Flow (A)
Cash Flow (B)
-$300,000
|-$40,000
1
20,000
19,000
50,000
12,000
3
50,000
18,000
4
390,000
10,500
Whichever project you choose, if any, you require a 15 percent return on your
investment.
a. If you apply the payback criterion, which investment will you choose? Why?
b. If you apply the discounted payback criterion, which investment will you
choose? Why?
Transcribed Image Text:17. Comparing Investment Criteria [LO1, 2, 3,5, 7] Consider the following two mutually exclusive projects: Year Cash Flow (A) Cash Flow (B) -$300,000 |-$40,000 1 20,000 19,000 50,000 12,000 3 50,000 18,000 4 390,000 10,500 Whichever project you choose, if any, you require a 15 percent return on your investment. a. If you apply the payback criterion, which investment will you choose? Why? b. If you apply the discounted payback criterion, which investment will you choose? Why?
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