A company is considering investing in 2 mutually exclusive projects. The projected cash flows follow in the table below. Assume that the appropriate discount rate is an effective annual rate of 11%. Project 0 1 2 3 4 A -5,000 2,500 2,000 1,500 1,000 B -20,000 9,000 9,000 5,000 4,000 Calculate the NPV and the IRR, and PI of each project. Explain which project should be taken according to each of these three decision rules. Which decision rule should you follow?

A company is considering investing in 2 mutually exclusive projects. The projected cash flows follow in the table below. Assume that the appropriate discount rate is an effective annual rate of 11%. Project 0 1 2 3 4 A -5,000 2,500 2,000 1,500 1,000 B -20,000 9,000 9,000 5,000 4,000 Calculate the NPV and the IRR, and PI of each project. Explain which project should be taken according to each of these three decision rules. Which decision rule should you follow?

Intermediate Financial Management (MindTap Course List)

13th Edition

ISBN:9781337395083

Author:Eugene F. Brigham, Phillip R. Daves

Publisher:Eugene F. Brigham, Phillip R. Daves

Chapter12: Capital Budgeting: Decision Criteria

Section: Chapter Questions

Problem 13P

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