1. Your division is considering two investment projects, each of which require s an up-front expenditure of $25,000. You estimate that the cost of capital is 10 percent and that the investment will produce the following after-tax ash flows :

Year Project A Project B

0 -25000 -25000

1 5000 20000

2 10000 10000

3 15000 8000

4 20000 6000

1) What are the payback periods of the two projects? You have to show how to get your answer.

Payback Period A  

Payback Period B  

2) If the projects are independent (non-mutually exclusive) and the cost of capital is 10 percent, which project (s) should the firm undertake? Answer this question with NPV and IRR of those two projects. You have to show how to get your answer.

NPV_A  

NPV_B  

IRR_A  

IRR_B  

Which Project (s)?  

3) If the projects are mutually exclusive and the cost of capital is 16 percent, which project should the firm undertake if the firm adopts only NPV method? Answer this question with NPV of those two projects. You have to show how to get your answer.

NPV_A  

NPV_B  

Which Project (s)?  

4) Find the crossover rate of the NPV profiles of the two projects. Show your work!

Crossover Rate=