Reference no: EM132554447

Assume your organization is considering two investment projects, each of which requires an upfront expenditure of $25 million. You estimate that the cost of capital is 10% and that the investments will produce the following after-tax cash flows (in millions of dollars):

Year      Project A           Project B

1                 5                    20

2                10                   10

3                15                      8

4                20                      6

Required:

Question a) What is the regular payback period for each project?

Question b) What is the discounted payback period for each project?

Question c) According to net present value (NPV) results: I. If the two projects are independent and the cost of capital is 10%, which project or projects should the firm undertake? II. If the two projects are mutually exclusive and the cost of capital is 5%, which project should the firm undertake? III. If the two projects are mutually exclusive and the cost of capital is 15%, which project should the firm undertake?

Question d) According to internal rate of return (IRR) which project should be accepted if they are independent?