Problem:
Year Cash flow A Cash flow B
0 -$300,000 -$40,000
1 20,000 19,000
2 50,000 12,000
3 50,000 18,000
4 390,000 10,500
Use a discount rate of 15%.
1. If you apply the NVP criteria, which investment will you chose and why?
2. If you apply the IRR criterion which investment will you chose and why?
3. If you apply the profitability index criterion which investment will you chose and why?
4. Based on your answers which project will you finally chose?