Question
A
B
B since A's NPV is higher
A since B's PBP is lower
Neither A nor B
Question 14.
14. Enjam Loving, Inc., is considering two mutually exclusive projects. Project A and Project B both have an initial outlay of $500. The cash flows from project A (in dollars) are: 100 in year 1, 200 in year 2, 300 in year 3 and 400 in year 4. Project B pays 400 dollars in year 1, 300 dollars in year 2, 200 dollars in year 3 and 100 dollars in year 4. Loving uses both NPV and Simple payback period criterion for decision making. Assuming a cost of capital of 6%, which project would the company choose? (Points : 3)
Explanation / Answer
B since company B has a higher yearly cash flow