Consider the following two mutually exclusive projects: Whichever project you choose,if any,you require a 14 percent return on your investment.If you apply the payback criterion,you will choose Project ______; if you apply the NPV criterion,you will choose Project ______; if you apply the IRR criterion,you will choose Project _____; if you choose the profitability index criterion,you will choose Project ___.Based on your first four answers,which project will you finally choose?
A)A; B; A; A; B
B)A; A; B; B; A
C)A; A; B; B; B
D)B; A; B; A; A
E)B; A; B; B; A

Question

Consider the following two mutually exclusive projects:  Whichever project you choose,if any,you require a 14 percent return on your investment.If you apply the payback criterion,you will choose Project ______; if you apply the NPV criterion,you will choose Project ______; if you apply the IRR criterion,you will choose Project _____; if you choose the profitability index criterion,you will choose Project ___.Based on your first four answers,which project will you finally choose?
A)A; B; A; A; B 
B)A; A; B; B; A 
C)A; A; B; B; B 
D)B; A; B; A; A 
E)B; A; B; B; A

Quizplus · Accepted Answer

Payback_A = ($54,000 - $12,700 - $23,200)/$27,600 = 2.66 yearsPayback_B = ($23,000 - $11,600 - $11,200)/$12,500 = 2.02 years The company should select Project A based on net present value. Payback ignores some cash flows and the time value of money. Neither the internal rate of return nor the profitability ratio are reliable methods when projects are mutually exclusive.

Consider the Following Two Mutually Exclusive Projects: Whichever Project