You are analyzing two projects with the cash flows shown below.

Year: 0 1 2 3 4 5

Project 1: -$6,000 $1,000 $1,000 $1,500 $2,000 $4,000

Project 2: -$6,000 $2,500 $2,000 $1,500 $1,000 $1,500

Construct an NPV chart with discount rates from 1% - 25%. On your NPV chart, please identify and label the following points:

a) The IRR of project 1 (calculate the value and label the value on the chart)

b) The IRR of project 2 (calculate the value and label the value on the chart)

c) The discount rate at which the NPV of the two projects is equal (i.e., the incremental IRR). (calculate the value and label the value on the chart)

d) What is the simple payback period for each project?

e) If you can only do one of the two projects, which project will you do if your firms cost of capital is 6%? Why?

f) If you had no capital constraints (i.e., if you had unlimited funds), which projects would you do if your firms cost of capital was 12%?

g) If you could only do one project, which project would you do if your firms cost of capital was 12%? Why?

h) Which projects would you do if your firms cost of capital was 16%? Why?