1. Your company has two projects to consider: a 3-year project X and a 4-year project Y. Cash flows of X and Y are illustrated in the following table, where the unit is million and the negative cash flows in Year 0 show the upfront investments.

Year	0	1	2	3	4
X	-95	45	58	62
Y	-80	38	35	35	30

Your company only has 100 million for the new investment and the cost of capital is 12%. According to the rule of Profitability Index, which of the following statements is TRUE?

[5 marks]

1. You should take Project X.
2. You should take Project Y.
3. You can take both.
4. None of above is correct.

2. There are two potential projects, P and Q, with different life horizons. Specifically, P will last for 5 years and Q will last for 7 years. Their cash flows are illustrated in the following table.

Year	0	1	2	3	4	5	6	7
P	-73	30	30	30	30	30
Q	-71	25	25	25	25	25	25	25

The cost of capital is 15%. The difference in their equivalent annual benefits (P minus Q) is closest to:

[5 marks]

1. 0.09
2. 0.19
3. 0.29
4. 0.39