Q2. Consider the following two mutually exclusive projects: Cash Flow (A) -$350,000 25,000 70,000 70,000 430,000 Cash Flow (B) -$35,000 17,000 11,000 17,500 11,600 Year 1 2 4 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 NPV criterion, which investment will you choose? Why? c. If you apply the IRR criterion, which investment will you choose? Why?

Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
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loan?
Q2. Consider the following two mutually exclusive projects:
Cash Flow (A)
-$350,000
25,000
Cash Flow (B)
-$35,000
17,000
Year
1
2
70,000
70,000
430,000
11,000
17,500
11,600
4
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 NPV criterion, which investment will you choose? Why?
c. If you apply the IRR criterion, which investment will you choose? Why?
Transcribed Image Text:loan? Q2. Consider the following two mutually exclusive projects: Cash Flow (A) -$350,000 25,000 Cash Flow (B) -$35,000 17,000 Year 1 2 70,000 70,000 430,000 11,000 17,500 11,600 4 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 NPV criterion, which investment will you choose? Why? c. If you apply the IRR criterion, which investment will you choose? Why?
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