Consider two mutually exclusive R&D projects that ADM is considering. Assume the discount rate for ADM is 9 percent.

Project A:	Server CPU .13 micron processing project
	By shrinking the die size to .13 micron, ADM will be able to offer server CPU chips with lower power consumption and heat generation, meaning faster CPUs.

Project B:	New telecom chip project
	Entry into this industry will require introduction of a new chip for cell phones. The know-how will require a large amount of up-front capital, but success of the project will lead to large cash flows later on.

Year	Project A			Project B
0	$	715,000		$	921,000
1		342,000			257,000
2		358,000			363,000
3		256,000			362,000
4		181,000			413,000
5		122,000			498,000
Complete the following:

Input area: Annual cash fiows Year 0 Year 1 Year 2 Year 3 Year 4 Year 5 Required return Output area a. NPV (A) NPV (B) NPV criterion implies accept b. IRR (A) IRR (B) IRR decision rule implies accept Year Incremental CF Incremental IRR (Crossover) #NUM! c. Profitability index (A) 8 Profitability index (B) Pl decision rule implies accept