1- Which project(s) should a firm choose when the projects are independent? When they are mutually exclusive? Suppose both are within the capital budget and k is 16 percent for both projects.

Project A: CF₀ = $2150; CF₁ = $930; CF₂ = $3930; CF₃ = $1430 Project B: CF₀ = $2150; CF₁ = $930; CF₂ = $930; CF₃ = $4330

A) Project B; project B

B) Both projects; project A

C) Neither project; neither project

D) Both projects; project B

2- Suppose your friend came to see you with an opportunity to invest in a project that generates $5,000 in the first and the third year, and $3,000 in the second year is. The initial investment required for the project is $10,000. If the risk-adjusted rate is 15%, she insists that the project is worth the investment. Which method is your friend using?

A) Net present value

B) Payback period

C) Internal rate of return

D) Profitability index