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12% Project A Time period 0 1 2 3 4 5 6 7 Cash flow (375) (300) (200) (100) 600 $600 $926 ($200) Disc. cash

12%

Project A

Time period

0

1

2

3

4

5

6

7

Cash flow

(375)

(300)

(200)

(100)

600

$600

$926

($200)

Disc. cash flow

Disc. cum. cash flow

Discounted Payback

Project B

Time period

0

1

2

3

4

5

6

7

Cash flow

(575)

190

190

190

190

$190

$190

$0

Disc. cash flow

Disc. cum. cash flow

Discounted Payback

f. What is the profitability index for each project if the cost of capital is 12%?

PV of future cash flows for A:

PI of A:

PV of future cash flows for B:

PI of B:

g. Given that these projects are mutually exclusive (meaning JWU Construction can only undertake one of the projects),

which project should the company select?

h. If the projects were independent, how would this change your answer? Explain.

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