A firm has two (2) capital projects A and B, which are under consideration for funding Both projects cost $500 million, and have the following cash flows (in millions) Year Project A Project B 0 $500 $500 1 100 400 2 200 300 3 200 200 4 400 100 Assuming that the firms payback cutoff is two (2) years a What is the payback for each project b If the projects are independent, which one should be selected Explain c If the projects are mutually exclusive, which one should be selected Explain

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Question: A firm has two (2) capital projects A and B, which are under consideration for funding. Both projects cost $500 million, and have the following

A firm has two (2) capital projects A and B, which are under consideration for funding. Both projects cost $500 million, and have the following cash flows (in millions):

Year	Project A	Project B
0	-$500	-$500
1	100	400
2	200	300
3	200	200
4	400	100

Assuming that the firms payback cutoff is two (2) years: a. What is the payback for each project? b. If the projects are independent, which one should be selected? Explain. c. If the projects are mutually-exclusive, which one should be selected? Explain.

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