Problem:
Evaluate the following 3 projects with all of the 6 capital budgeting tools (Net Present Value, Internal rate of Return, Profitability Index, Payback Period, Discount Payback Period, Modified Internal rate of Return). Which projects would you approve? If you could do only one (assume the most you have to invest is $500), which one would you choose and why? in other words, which project would you pick as the best:
Projected
Cash Flow Years 0 1 2 3 4 5
Project A (500) 45 55 65 175 185
Project B (250) 85 65 55 45 100
Project C (400) 175 75 75 175 25
Use 10% as the discount rate and WACC (and the IRR/MIRR hurdle rate)
*Year 0 is your initial cost outlay -- the cost of the project.