Question

Consider the following two mutually exclusive projects:

Year	Cash Flow (A)	Cash Flow (B)
0	–$419,000	–$37,000
1	47,000	19,800
2	59,000	13,900
3	76,000	15,600
4	534,000	12,400

The required return on these investments is 11 percent.
a.	What is the payback period for each project? (Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16.)
b.	What is the NPV for each project? (Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16.)
c.	What is the IRR for each project? (Do not round intermediate calculations and enter your answers as a percent rounded to 2 decimal places, e.g., 32.16.)
d.	What is the profitability index for each project? (Do not round intermediate calculations and round your answers to 3 decimal places, e.g., 32.161.)
e.	Based on your answers in (a) through (d), which project will you finally choose?

Answer 1

The project with highest NPV will be chosen, thus the answer for e is Project A