Consider the following two mutually exclusive projects: Year Cash Flow (X) Cash Flow (Y) 0 -$365,000 -$38,000 1 25,000 16,000 2 65,000 12,000 3 65,000 17,000 4 425,000 15,000 Whichever project you choose, if any, you require a 13 percent return on your investment. i. Which investment will you choose if you use the payback decision criteria? Justify your answer. ii. Which investment will you choose if you use the NPV decision criteria? Justify your answer. iii. Which project will you choose ultimately based on your answers above?

Consider the following two mutually exclusive projects: Year Cash Flow (X) Cash Flow (Y) 0 -$365,000 -$38,000 1 25,000 16,000 2 65,000 12,000 3 65,000 17,000 4 425,000 15,000 Whichever project you choose, if any, you require a 13 percent return on your investment. i. Which investment will you choose if you use the payback decision criteria? Justify your answer. ii. Which investment will you choose if you use the NPV decision criteria? Justify your answer. iii. Which project will you choose ultimately based on your answers above?

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

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