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Two mutually exclusive projects are provided for projects A and B (that cancel each other out). The cash flow of the projects is in € millions:
|
Year |
Project A |
Project B |
|
0 |
-200 |
-2.000 |
|
1 |
250 |
1.800 |
|
2 |
200 |
900 |
|
3 |
100 |
900 |
The yield is 10%. a) Based on the Payback Period Rule, should the project be selected? Justify the answer with calculations. b) Based on the Net Present Value method, should the project be selected? Justify the answer with calculations. c) Based on the Internal Rate of Return method, should the project be selected? Justify the answer with calculations. d) Based on the "incremental IRR" method, should the project be selected? Justify the answer with calculations. Explain which method / methods are giving a more correct result than others and why.
