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The CFO at Rabbit Corporation has asked you to analyze two proposed capital investments, Projects A and B. Each project has a cost of $10,000, and the cost of capital is 12% for each. The projects' expected net cash flows are as follows:
Expected Net Cash Flows
Year
Project A
Project B
0
(10,000)
1
6,500
3,500
2
3,000
3
4
1,000
1. Calculate each project's payback period.
2. Calculate each project's net present value (NPV).
3. Calculate each project's internal rate of return (IRR).
4. Calculate each project's profitability index (PI).
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