Exhibit 3. GHI Inc. is considering two projects, A and B whose cash flows in millions of dollars are equally risky and not repeatable. The total budget for investment is $9 million and the WACC is 20%.

Year 0 1 2 3 4

CF A $4 $2 $3 $2.5 $1.5

CF B $7 $4 $6 $3 - $0.5

5. Refer to Exhibit 3. Based upon the capital budgeting criteria of NPV, IRR, MIRR, Payback, and profitability index, and assuming projects A & B are independent, which project(s) should GHI consider taking and why? (Yes, this means you need to calculate all of the above mentioned criteria correctly to get full credit. Also, yes Project B's last cash flow is NEGATIVE.)

6. Refer to Exhibit 3. If projects A & B were mutually exclusive, what is the crossover rate? (Yes, it does exist and we can have more than one sign change for cash flow differentials because they aren't measuring cash flows, they are measuring the differences in cash flows.). What does the crossover rate specifically tell management of GHI and how will this change the decision made in #5 above?