Below are the estimated cash flows for two projects: S and L. The WACC is 10%.

Time	0	1	2	3
Project L	-100	10	60	80
Project S	-100	70	50	20

1a. What is the payback period? Find the paybacks for Projects L and S.

1b..What is the rationale for the payback method? According to the payback criterion, which project(s) should be accepted if the firms maximum acceptable payback is 2 years, if Projects L and S are independent? If Projects L and S are mutually exclusive?

1c. What is the difference between the regular and discounted payback methods? What is Project Ls discounted payback, assuming a 10% cost of capital?

1d.Define the term net present value (NPV). What is each projects NPV?

1e. What is the rationale behind the NPV method? According to NPV, which project(s) should be accepted if they are independent? Mutually exclusive?

1f. Define the term internal rate of return (IRR). What is each projects IRR?

1g. What is the logic behind the IRR method? According to IRR, which project(s) should be accepted if they are independent? Mutually exclusive?

1h. If a project with normal cash flows has an IRR greater than the WACC, the project must also have a positive NPV.