My small business is considering two mutually exclusive projects, X and Y, whose costs and cash flows are shown below:
Year Project X Cash Flow Project Y Cash Flow
0 -$2,000 -$2,000
1 200 2,000
2 600 200
3 800 100
4 1,400 75
The projects are equally risky, and my small business cost of capital is 12 percent. We must make a recommendation, and must base it on the following calculations.
a. Payback method
b. Discounted payback method
c. NPV method
You will find the answer to this puzzling question inside...