1. Tri Star Inc. has the following mutually exclusive projects:

Year	Project A	Project B
0	-14,500	9,800
1	8,500	4,700
2	6,800	4,200
3	2,800	4,100

a. Suppose the companys payback period cutoff is two years. Which of these two projects should be chosen?

b. Suppose the company uses the NPV rule to rank these two projects. Which project should be chosen if the appropriate discount rate is 15 percent?

2. An investment project provides cash flows of $825 per year for eight years. Which is the project payback period if the initial cost is $3,200? What if the initial cost is $4,600? What if it is $7,900?

3. Pluto Planet, Inc. has a project with the following cash flows.

Year	Cash Flows
0	-13,400
1	6,800
2	7,300
3	4,200

The company evaluates all projects by applying the IRR rule. If the appropriate interest rate is 9 percent, should the company accept the project?

4. Compute the internal rate of return for the cash flows of the following two projects:

	Cash Flows	Cash Flows
Year	Project A	Project B
0	-5,200	-3,600
1	1,800	1,300
2	3,200	2,100
3	2,200	1,800

5. Consider the following cash flows of two mutually exclusive projects for Spartan Rubber Company. Assume the discount rate for Spartan Rubber Company is 10 percent.

Year	Dry Prepreg	Solvent Prepeg
0	-1,600,000	-850,000
1	640,000	530,000
2	490,000	380,000
3	1,100,000	320,000

a. Based on the payback period, which project should be taken?

b. Based on the NPV, which project should be taken?

c. Based on the IRR, which project should be taken?

d. Based on the above analysis, is incremental IRR analysis necessary? If yes, please conduct the analysis.

6. Consider two streams of cash flows, A and B. Stream As first cash flow is 7,000 and is received three years from today. Future cash flows in stream A grow by 3 percent in perpetuity. Stream Bs first cash flow is -8,000, is received two years from today, and will continue in perpetuity. Assume that the appropriate discount rate is 12 percent.

a. What is the present value of each stream?

b. Suppose that the two are combined into one project, called C. What is the IRR of Project C?

c. What is the correct IRR rule for Project C?