You have been retained as a management consultant by a local specialty retailer, to analyze two proposed capital investment projects, projects X and Y. Project X is a sophisticated working capital and inventory control system server, specifically designed for inventory processing and control in the retailing business. Project Y is a similar working capital and inventory control system based on a personal computer using generalpurpose PC software. The cost of capital for both projects is 12%. The projects expected net cash flows are as follows

Table 1: Expected Cash Flows

Year   Project X Project Y

0 -$100,000 -$70,000

1 30,000 52,500

2 27,500 -17,500

3 30,000 35,000

4 50,000 -7,500

5 20,000 50,000

Part A: Calculate each projects payback period, NPV, and IRR.

• Part B: Should both projects be accepted if there is no overlap or conflict between their uses according to the NPV decision rule?

• Part C: Which project should be accepted if they are mutually exclusive? What if the firm has limited capital available? Why?

• Part D: What is the NPV and IRR if the required return is 18%? Which project should be accepted now? Whya