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We have two investment projects A&B. Both projects cost $250, and we require a 15% return of the two investments.

We have two investment projects A&B. Both projects cost $250, and we require a 15% return of the two investments.


Year                          A                        B

1                           $100                            $100     

2                                 $100                      $200

3                                 $100                      0

4                                 $100                      0


a)    Based on the payback period rule, which project would you pick? Explain.

b)    Based on the NPV rule, which project would you pick? Explain.

c)    Do (a) and (b) give you the same conclusion? If not, why? Please elaborate.

d)    What other methods can you use to evaluate proposed investments? Please explain.

Top Answer

Simple payback and NPV do not have the same result ... as per payback rule,... View the full answer

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Other Answers

Thus, based on payback rule, you would pick project B as it has a lesser payback period. Thus, based on NPV rule, select... View the full answer

NPVProjects_formulae.JPG

NPVProjects.JPG

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