Comparing investment criteria: payback, NPV, IRR, profitability index
Consider the following two mutually exclusive projects:
(Please see attached spreadsheet for info.)
Whichever project you choose, if any, you require a 15% return on your investment.
a) If you apply the payback criterion, which investment will you choose? Why?
b) If you apply the NPV criterion, which investment will you choose? Why?
c) If you apply the IRR criterion, which investment will you choose? Why?
d) If you apply the profitability index criterion, investment will you choose? Why?
e) Based on your answers in (a) through (d), which project will you finally choose? Why?
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... of the cash flows I is the intial investment. ... Using the profitability index to compare mutually exclusive ... alternatives are acceptable by all criteria but to ...
... explanation to calculate the NPV, IRR, payback, profitability index, and discounted payback for two mutually exclusive projects. Comparing Investment Criteria. ...
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