5) Assume two mutually exclusive investments have the following cash flows: Proj

Question

5)     Assume two mutually exclusive investments have the following cash flows:

Project

Year 0

Year 1

Year 2

Year 3

Project A

-$200

$100

$100

$100

Project B

-$300

$150

$125

$150

Complete the following table assuming that the cost of capital is 10%: SHOW ALL WORK!

Project A

Project B

Under this Investment Criteria which project would you choose?

(Enter A or B)

NPV

IRR

Payback

MIRR

Profitability Index

Based on your answers in the table above, which project would you finally choose and why?

Project

Year 0

Year 1

Year 2

Year 3

Project A

-$200

$100

$100

$100

Project B

-$300

$150

$125

$150

Explanation / Answer

NPV = 48.69

IRR = 23.38%

payback = 2

MIRR = 18.29%

PI = 1.24

Project B

NPV = 52.37

IRR = 19.70%

Payback = 2.17

MIRR = 16.06%

PI = 1.17

NPV = B

IRR = A

Payback = A

MIRR = A

PI = A

choose B based on NPV finally

10.00% Cash flows Year Discounted CF                (200.00) 0 -200.00                  100.00 1 90.91                  100.00 2 82.64                  100.00 3 75.13

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