THE FOLLOWING INFORMATION APPLIES TO QUESTIONS 1 AND 2.Consider the following two mutually exclusive projects each of which requires an initial investment of $30000 and both provide cash inflows of $60000 as shown below. This organization has a 15% cost of capital.Year Project A Project B0 ($30000) ($30000)1 $30000 $100002 20000 200003 10000 300001. Using the payback criterion which is the most desirable projectProject AProject BBoth projects A and B are equally acceptable.Neither project A or B is acceptable.2. Using the net present value criterion which is the most desirable projectProject AProject BBoth projects A and B are equally acceptable.The desirability cannot be determined using the current information.The following Information applies to questions 1 and 2.Sollberger Company is now investigating three mutually exclusive investment opportunities. The company s cost of capital is 10 percent. Information on the three investment projects under study is given below: 1 2 3Initial investment $(40000) $(36000) $(45000)Net present value $(2024) $7340 $7297Profitability index 0.95 1.20 1.10Internal rate of return 8% 14% 19%Life of the project 5 yrs 12 yrs 3 yrsSollberger Company has limited funds available for investment and therefore it can t accept all of the projects listed above.3. Which projects are acceptable to Sollbergerinvestment 2investment 3investment 2 and 3investment 1 2 and 34. Which single investment do you recommend of these three mutually exclusive projectsinvestment 1investment 2investment 3All of these investments could be recommended.
