Directions: Answer the following questions on a separate document. Explain how you reached the answer or show your work if a mathematical calculation is needed, or both.

Use the following information for Questions 1 through 3:

Assume you are presented with the following mutually exclusive investments whose expected net cash flows are as follows:

EXPECTED NET CASH FLOWS:

Year Project A Project B

0 $400 $650

1 528 210

2 219 210

3 150 210

4 1,100 210

5 820 210

6 990 210

7 325 210

1. (a) What is each projects IRR?

(b) If each projects cost of capital were 10%, which project, if either, should be selected? If the cost of capital were 17%, what would be the proper choice?

2. (a) What is each projects MIRR at the cost of capital of 10%? At 17%? (Hint: Consider Period 7 as the end of Project Bs life.)

3. What is the crossover rate, and what is its significance?

Use the following information for Question 4:

The staff of Porter Manufacturing has estimated the following net after-tax cash flows and probabilities for a new manufacturing process:

Line 0 gives the cost of the process, Lines 1 through 5 give operating cash flows, and Line 5* contains the estimated salvage values. Porters cost of capital for an average-risk project is 10%.

Net After-Tax Cash Flows

Year P = 0.2 P = 0.6 P = 0.2

0 $100,000 $100,000 $100,000

1 20,000 30,000 40,000

2 20,000 30,000 40,000

3 20,000 30,000 40,000

4 20,000 30,000 40,000

5 20,000 30,000 40,000

5* 0 20,000 30,000

4. Assume that the project has average risk. Find the projects expected NPV. (Hint: Use expected values for the net cash flow in each year.)

Please show all work and highlight answers. Thanks! :)