7.Consider the following two mutually exclusive investment projects:

Cash flows of project A:

012345

-400300300300300300

Cash flows of project B:

012345

-2,2001,0001,0001,0001,0001,000

a)Analyze each project individually using the profitability index. Which one of mutually exclusive investments appears to be the better project?

b)Now, look at the incremental cash flows using profitability index. Is it worth taking project B instead of project A?

c)Repeat all of the analysis in (a) and (b) except now use NPV.

d)Which is the better investment? Explain.