Question: Consider the following two projects: Cash FlowsProject AProject BC 0 -$200-$200C 1 80100C 2 80100C 3 80100C 4 80 Instructions: a. If the opportunity cost

Consider the following two projects:

Cash FlowsProject AProject BC₀-$200-$200C₁80100C₂80100C₃80100C₄80

Instructions:

a. If the opportunity cost of capital is 11%, which of these two projects would you accept (A, B, or both)? Why? (1 mark)

b. Suppose that you can choose only one of these two projects. Which would you choose? The discount rate is still 11%. Why? (1 mark)

c. Which one would you choose if the cost of capital is 16%? Why? (1 mark)

d. What is the payback period of each project? (1 mark)

e. Is the project with the shortest payback period also the one with the highest NPV? (1 mark)

f. If the opportunity cost of capital is 11%, what is the profitability index for each project? Is the project with the highest profitability index also the one with the highest NPV? Which measure should you use to choose between the projects?

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