Consider the following two investments. Investment A costs $100,000 and has a cash inflow of $25,000, $28,000, $35,000, and $45,000 for the next four years, respectively. Investment B costs $120,000 and has a cash inflow of $45,000, $35,000, $28,000 and $25,000 for the next four years, respectively. The cost of capital is 9% and required payback is 4 years for both projects. The projects are mutually exclusive.
(a) What is the payback period for both projects? Using the decision rule, which project should we accept?
(b) What is the discounted payback period for both projects? Using the decision rule, which project should we accept?
(c) What is the profitability index for both projects? Using the decision rule, which project should we accept?
(d) What is the IRR for both projects? Using the decision rule, which project should we accept?
(e) What is the MIRR for both projects? Using the decision rule, which project should we accept?
(f) What is the NPV for both projects? Using the decision rule, which project should we accept?