Question: Your company is considering two mutually exclusive projects, X and Y, whose costs and cash flows are shown below: Time X Y 0 -$2,000 -$2,000

Your company is considering two mutually exclusive projects, X and Y, whose costs and cash flows are shown below:

Time

X

Y

0

-$2,000

-$2,000

1

200

2,000

2

600

200

3

800

100

4

1,400

75

a) What is the payback period for Project A and B? Which would be chosen and why?

b) If the required rate of return on these projects is 10 percent, what are the NPV for Project A and B? Which would be chosen and why?

c) Calculate the profitability index for each project.

d) What is the IRR of both projects?

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