1. (42 points) Kirksville Company is considering two independent investments. The projects expected net cash flows are as follows: Year Expected Net Cash Flows Project A Project B 0 -$1,300 -$405 1 $300 $135 2 $200 $135 3 $100 $135 4 $600 $135 5 $600 $135 6 $850 $135 7 $180 $135 Assume the required rate of return is 10%.

A.(4 points) What is each projects IRR? Provide the equation. If you use the IRR method for capital budgeting analysis, which project would you choose? Explain why.

B.(4 points) What is each projects NPV? Provide the equation. If you use the NPV method for capital budgeting analysis, which project would you choose? Explain why.

C.(4 points) What is each projects Payback period? If you use the Payback period method for capital budgeting analysis, which project would you choose? The target payback period is 4 years. Explain.

D.(4 points) What is each projects Discounted Payback period? If you use the Discounted Payback period method for capital budgeting analysis, which project would you choose? The target payback period is 4 years. Explain.

E.(4 points) What is each projects PI? If you use the PI method for capital budgeting analysis, which project would you choose? Explain.

F.(4 points) Assuming that the projected future net cash flows for each project (from year 1 through 7) are net income, find the AAR? If you use the AAR method for capital budgeting analysis, which project would you choose? The target AAR is 65%. Explain.

J.(4 points) Find the crossover rate. You are absolutely required to provide the equation.

H.(6 points) Sketch the NPV profile for both projects in one graph. At least 5 different coordinates should be plotted on the x and y axis.

I.(4 points) Now, assume that the required rate of return is 15%. Which project would you choose if you apply the IRR method? Which project would you choose if you apply the NPV method? Is there any ranking conflict? Explain why. Do not calculate the NPV or IRR. .

J.(4 points) Now, assume that the required rate of return is 25%. Which project would you choose if you apply the IRR method? Which project would you choose if you apply the NPV method? Is there any ranking conflict? Explain why. Do not calculate the NPV or IRR.