1.Two mutually exclusive projects being considered by a firm and have the following projected cash flows:

Project A Project B

Year Cash Flow Cash Flow

0 ($150,000) ($150,000)

1 50,000 30,000

2 50,000 30,000

3 50,000 30,000

4 30,000

5 30,000

6 30,000

The cost of capital is 10 percent. Using the NPV rule, evaluate both projects using the replacement approach

2.Which of the following statements is CORRECT?

• The regular payback method recognizes all cash flows over a project's life.
• The discounted payback method recognizes all cash flows over a project's life, and it also adjusts these cash flows to account for the time value of money.
• The regular payback method was, years ago, widely used, but virtually no companies even calculate the payback today.
• One drawback of the regular payback is that this method does not take account of cash flows beyond the payback period.