The Mayfair Comedy Review is evaluating two new locations after its current building burned (unhappy customer). The cash flows for the two sites are shown below:

Year Site A Site B

0 -$100 -$100

1 40 60

2 60 60

3 90 60

a. Calculate the payback period for the two sites. If the sites are independent and the firm's payback criterion is 2 years, what decision should the Review make? What if the sites are mutually exclusive? Answer the last two questions assuming the firm's payback criterion is 3 years.

b. Calculate the NPV for the two sites assuming the required rate of return is 15%. If the sites are independent, what decision should the Review make? What if the sites are mutually exclusive? Would your answers change if the required return was 20%?

c. Calculate the IRR for the two sites. If the sites are independent and the firm's required rate of return is 20%, what decision should the Review make? What if the sites are mutually exclusive? Answer the last two questions assuming the required return was 35%.

d. When a project has a positive NPV and conventional cash flows, what do we know about its IRR? Explain.