You are a financial analyst for Damon Electronics Company. The director of capital budgeting Project analysis has asked you to analyze two proposed capital investments. Projects X and Y. Each project has a cost of SI 0,000. and the cost of capital for each project is 12 percent. The projects' expected net cash flows are as follows:

EXPECTED NET CASH FLOWS EAR PROJECT X PROJECT Y

(Si 0.000) (SI 0,000)

1 6.500 3,500 2 3.000 3,500 3 3.000 3,500 4 1.000 3.500

a. Calculate each project's payback period, net present value (XP\~). internal rate of retur

'IRR). and modified internal rate of return (MIRR).

b. Which project or projects should be accepted if they are independent?

c. Which project should be accepted if they are mutually exclusive?

d. How might a change in the cost of capital produce a conflict between the NPV and IRR rankings of these two projects? Would this conflict exist if k were 5 percent? (Hint: Plot the NPV profiles.)

e. Why does the conflict exist?AppendixLO1