Project A and B are two mutually exclusive investment projects. Project A has higher initial cash flows but lower cash flows in later years, while Project B has lower initial cash flows but higher cash flows in later years. The internal rate of return and profitability index are calculated for each project to determine which project provides a 15% return on investment and has a higher profitability index to select the optimal project.
Seal of Good Local Governance (SGLG) 2024Final.pptx
Consider the following two mutually exclusive projectsYear .pdf
1. Consider the following two mutually exclusive projects:
Year Cash Flow (A) Cash Flow (B)
0 $ 491,000 $ 92,000
1 114,000 52,000
2 134,000 36,000
3 79,000 33,500
4 474,000 28,600
Whichever project you choose, if any, you require a 15% return on your investment.
What is the IRR for each project? (Round the final answers to 2 decimal places.)
If you apply the IRR criterion, which investment will you choose?
Project A
Project B
What is the profitability index for each project? (Do not round intermediate calculation. Round
the final answers to 3 decimal places.)
Project A
Project B
If you apply the profitability index criterion, which investment will you choose?
Project A
Project B
Based on your answers in (a) through (e), which project will you finally choose?
Project A
Project B