FIN 320: Managerial Finance

Capital Budgeting

Consider the following two mutually exclusive projects

Year CF of Project A CF of Project B
0 -$350,000 -$50,000
1 45,000 24,000
2 65,000 22,000
3 65,000 19,500
4 440,000 14,600

Whichever project you choose, if any, you require a 15 percent return on your investment.

  1. If you apply the payback criterion, which investment will you choose? Why?

I would pick project B because the payback period is less.

  1. If you apply the NPV criterion, which investment will you choose? Why?
  2. If you apply the IRR criterion, which investment will you choose? Why?
  3. If you apply the profitability index criterion, which investment will you choose? Why?
  4. Based on your answers in (a) through (e ), which project will you finally choose?


Table 1

Capital Budgeting Criteria Project A Project B Project Chosen


  • Prepare a write-up of your report not more than 2 pages 12 points font and double space summarizing your answer from a) to e). The write-up should be a report format, summarizing all your findings and support your findings with numbers (using the questions asked as a guideline to form the report format).  The report should have three main parts, introduction, body, and conclusion.  The introduction should provide a brief introduction what you will be discussing the project.  In the body, students should summarize their findings in words and support the findings with the numbers.  Insert the table that summarizes your finding where appropriate.  Insert graphical representation if necessary where the text is being discussed.   In the conclusion, you need provide the main finding of your report, reemphasize your key findings.  There is no need to explain the calculation in the report.  Attached all raw data, calculation, and regression output at the end of project.  The assignment report has to be well-written and well-organized and free from grammatical mistakes.  Please format all the number to 4 decimals for easy comparison.  Please place the $ or % where it is appropriate.


  • The report should also contain main Table 1. Attached all data and calculation to the end of project.  Show your work by using the financial calculator key stroke at the end, or show your work by using NPV and IRR functions in excel spread sheet at the end of report.


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