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Suppose a company is considering two investment projects. Both projects require an upfront expenditure of $30 million. The company estimates that the cost of capital is 10% and that the investments will result in the following after-tax cash flows (in millions of dollars). Complete parts (a) through (e) below.
Year Project A Project B1 $28 $102 $20 $153 $10 $204 $5 $25
a) Find the regular payback period for each project.b) Find the discounted payback period for each project.c) Assume that the two projects are independent and the cost of capital is 10%. Which project or projects should the company undertake? Base your results on the NPV.d) Assume that the two projects are mutually exclusive and the cost of capital is 5%. Which project or projects should the company undertake? Base your results on the MIRR.e) Explain why quantitative measures may not always be the best way to evaluate a project.
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