Alpha is considering Project A and Project B both with cost of capital 6%. . A: -$10,000, $3,500, $3,500, $3,500, $3,500 . B: -$2,000, $743, $743, $743, $743 Calculate the NPV and IRR of each. Are they acceptable? Sketch the NPV profiles on the same axes. The projects are mutually exclusinve. Which is better? Explain in both NPV and IRR terms. 2. Delta Co. is considering project D. . D: -$2,000, $4,000, $6,000, -$10,000 Ds cost of capital is 8%, and the spread sheet says that its IRR is 15% but its NPV at 8% is -$306. Should Gamma take the project, because the IRR is greater than the cost of capital? Explain. 3. What is arbitrage? Why do arbitrage opportunities vanish quickly? 4. Today Security A sells for $50.00 and B sells for $52.00. One year from today for an hour a conversion window will open and A and B may be exchange one for one without cost. Neither will pay its owner any dividend or interest before then. . (a) What is the no-arbitrage prices of B today? . (b) Show how to make an arbitrage profit if B sells for $52.00.