1. Below are two after-tax cash flows for two proposed projects, K and T. If WACC = 10.00%, which project(s) would be acceptable?

Year          0             1              2             3

K          -20,000     9,000      9,000      9,000

T          -20,000          0             0        26,500

NPV(K) > 0, acceptable; NPV(T) > 0, acceptable

NPV(K) > 0, acceptable; NPV(T) < 0, reject

NPV(K) < 0, reject; NPV(T) > 0, acceptable

NPV(K) < 0, reject; NPV(T) < 0, reject

2. Given the below after-tax cash flow for two proposed projects. You can only do one of the projects; which proposed project would you choose if the WACC is 9.89%.

Year          0            1            2            3             4

A          -250         75          75           75           75

B          -250       100         100         100            0

NPV(A) > NPV(B), choose A

NPV(B) > NPV(A), choose B

NPV(A) < 0, NPV(B) < 0, choose neither

NPV(A) = NPV(B), choose either

EXTRA CREDIT: You are asked to select the proposed project A or B that has the highest Operating Cash Flow (OCF). Proposed Project A has estimated net income = - $2,400, depreciation expense of $7,200 and non-cash revenue = $1,000. Proposed Project B has estimated net income = -$1,000, depreciation of $5,000 and non-cash revenue = $500. The other analyst selects Proposed Project A as the highest OCF; you ____ because ____.

Agree; Proposed Project A net income is more negative than Proposed Project B net income.

Disagree; Proposed Project A's OCF is lower than Proposed Project B's OCF

Disagree; Proposed Project A OCF is negative, Proposed Project B OCF is positve.

Agree; Proposed Project A OCF is higher than Proposed Project B OCF..