1. The director of capital budgeting for a firm has identified two projects, A and B, with the following expected net cash flows:

Expected Net Cash Flows

Year Project A Project B

0 - $145 -$295

1 85 120

2 75 165

3 90 140

Both of the projects have a cost of capital of 8 percent.

1a. What is Project A's and Project Bs discount payback (DPB)? (10 points)

DPB for A = ____________.

DPB for B = ______________.

1b. What is the profitability index (PI) for Both Projects? (10 points)

Profitability Index for A = ____________.

Profitability Index for B = _____________.

1c. What is the internal rate of return for Both Projects? (10 points)

IRR for Project A = _____________.

IRR for Project B = ______________.

1d. Based on your findings above, what should the company do if both projects are independent to each other? Why? What if both projects are mutual exclusive? (10 points)