Question: Two mutually exclusive projects have the following projected cash flows: Year Project A Cash flow Project B Cash Flow 0 -$50,000 -$50,000 1 25,625 0

Two mutually exclusive projects have the following projected cash flows:

Year

Project A

Cash flow

Project B

Cash Flow

0

-$50,000

-$50,000

1

25,625

0

2

25,625

0

3

25,625

0

4

25,625

0

5

15,625

150,000

  1. If the required rate of return on these projects is 20 percent, what are the NPVs of two projects? Which project should be better? If they are standalone projects, what is the choice?
  2. If IRRA = 40.36%, IRRB = 24.57%, which project should be chosen?
  3. What is the payback period for each project? If the cutoff period is 3 years, which project should be better?
  4. What is the profitability index for each project?

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