1.Consider the following two mutually exclusive projects, X and Y, and their cash flows information,

Cash Flows

Project Year 0Year 1Year 2Year 3Year 4IRR__

X($2,700) $1,000 $1,500$800$40016.22%

Y($3,200) $1,000 $1,600 $1,100$75015.51%

(a)Assume that the appropriate discount rate is 14%, calculate the Modified IRR (MIRR; McKinsey's approach) for Project Y only.Explain precisely (and concisely) which project you should recommend according to the MIRR method, given that Modified IRR for Project X is 15.13%.

(b)Explain precisely (and concisely) how you construct the incremental project (between X and Y), and calculate its annual cash flows and IRR (only).Should the incremental project be accepted?Explain precisely (and concisely) your final selection between the two mutually exclusive projects, i.e., X vs Y.

(c)Calculate the Equivalent Annual Cash Flow (i.e., EAC application) for Project Y.

SHOW YOUR CALCULATIONS