Question

1.
Which of the following methods of project analysis are most commonly used by CFO's?
internal rate of return and net present value
discounted payback and net present value
net present value and payback
internal rate of return and payback

2.  

Consider the following two mutually exclusive projects:

  

Year	Cash Flow (A)				Cash Flow (B)
0	–$	341,000			–$	51,000
1		54,000				24,900
2		74,000				22,900
3		74,000				20,400
4		449,000				15,500

  

Whichever project you choose, if any, you require a 15 percent return on your investment.

  

a-1	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.)

  

	Payback period
Project A	years
Project B	years

  

a-2	If you apply the payback criterion, which investment will you choose?
	Project A Project B

  

b-1	What is the discounted payback period for each project? (Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16.)

  

	Discounted payback period
Project A	years
Project B	years

  

b-2	If you apply the discounted payback criterion, which investment will you choose?
	Project A Project B

  

c-1	What is the NPV for each project? (Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16.)

  

	NPV
Project A	$
Project B	$

  

c-2	If you apply the NPV criterion, which investment will you choose?
	Project A Project B

  

d-1	What is the IRR for each project? (Do not round intermediate calculations. Enter your answers as a percent rounded to 2 decimal places, e.g., 32.16.)

  

	IRR
Project A	%
Project B	%

  

d-2	If you apply the IRR criterion, which investment will you choose?
	Project A Project B

  

e-1	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.)

  

	Profitability index
Project A
Project B

  

e-2	If you apply the profitability index criterion, which investment will you choose?
	Project A Project B

f.	Based on your answers in (a) through (e), which project will you finally choose?

Answer 1

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