Question: A firm is analyzing two mutually exclusive projects, A and B, whose cash flows are shown below: Years 0 1 2 3 4 A -1,100

A firm is analyzing two mutually exclusive projects, A and B, whose cash flows are shown below:

Years 0 1 2 3 4

A -1,100 900 350 100 10

B -1,100 0 300 550 850

CC=12% , with no capital restrictions at that cost. The CPP=2years

CC= Cost of Capital, CPP= cutoff payback period, PB= Payback, DPB=discounted payback, PI= profitability index, CR = Crossover rate

Calculate each projects NPV, PB, DPB, IRR and PI. Which project would you choose based on each method?

Show the NPV profile (table and graph) of the two projects and find CR. Which method gives you the correct answer? Is there a conflict between NPV and IRR methods? Explain.

Calculate each projects MIRR. Which project would you choose? Explain why MIRR is better than IRR.

Use a data table to do a sensitivity analysis to see how cost of capital affects the IRR and MIRR of the two projects. Explain

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