CAPITAL BUDGETING Your company is considering two projects. Its WACC is 10%, and the projects’ cash flows (in millions of dollars) would be as follows: (Note: Show the details of your analysis. If you use Excel, copy and paste your analysis.)

year project A project B

0 -$50 -$50

1 10 50

2 30 15

3 20 6

4 25 2

1) Calculate Project A’s NPV, IRR, regular payback period, and discounted payback period.

2) Calculate Project B’s NPV, IRR, regular payback period, and discounted payback period.

3) If the two projects are independent, which project(s) should be chosen?

4) If the two projects are mutually exclusive, which project(s) should be chosen?

5) If the WACC was 5%, would this change your recommendation if the projects were mutually exclusive? Explain your answers.

6) If the WACC was 15%, would this change your recommendation if the projects were mutually exclusive? Explain your answers.

7) Which project looks better when judged by the regular paybacks?

8) Which project looks better when judged by the discounted paybacks?