Consider the following two mutually exclusive projects: Cash flow (A) -RM300,000 20,000 50,000 50,000 390,000 i) ii) Year 0 1 2 3 4 Cash flow (B) -RM40,000 19,000 12,000 18,000 10,500 If you apply the payback criterion, which investment will you choose if you set the maximum payback period of 3 years? If you apply the internal rate of return (IRR) criterion, which investment will you choose, if you require a 15% return?

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
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A)
Consider the following two mutually exclusive projects:
Cash flow (A)
-RM300,000
20,000
50,000
50,000
390,000
i)
ii)
Year
0
1
2
3
4
Cash flow (B)
-RM40,000
19,000
12,000
18,000
10,500
If you apply the payback criterion, which investment will you choose if you
set the maximum payback period of 3 years?
If you apply the internal rate of return (IRR) criterion, which investment will
you choose, if you require a 15% return?
Transcribed Image Text:A) Consider the following two mutually exclusive projects: Cash flow (A) -RM300,000 20,000 50,000 50,000 390,000 i) ii) Year 0 1 2 3 4 Cash flow (B) -RM40,000 19,000 12,000 18,000 10,500 If you apply the payback criterion, which investment will you choose if you set the maximum payback period of 3 years? If you apply the internal rate of return (IRR) criterion, which investment will you choose, if you require a 15% return?
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