标题: About the problem [打印本页] 作者: erick02 时间: 2019-12-11 16:52 标题: About the problem
MC Petroleum, Inc., is trying to evaluate the following two mutually exclusive projects. Whichever project the firm chooses, it requires a 13% return on its investment.
Year Cash Flow (A) Cash Flow (B)
0 - 500,000 -50,000
1 80,000 4,000
2 100,000 30,000
3 250,000 20,000
4 380,000 30,000
(a) If you rely on the payback period method, which investment will you choose? Support your
answer with relevant calculations.
(b) If you use the NPV rule, which investment will you choose? Support your answer with
relevant calculations.
(c) Calculate IRRs of Projects A and B. Explain what specific problems the firm would have if
the firm uses the IRR rule to choose between these two mutually exclusive investments.
(d) Over what range of discount rates would Project A have higher NPV than Project B? Explain
your answers.
