1-Projects 1 and 2 have similar outlays, although the patterns of future cash flows are different. The cash flows as well as the NPV and IRR for the two projects are shown below. For both projects, the required rate of return is 10 percent and there is no capital rationing.

Project 1 Project 2

0 -50 -50

1 20 0

2 20 0

3 20 0

4 20 100

NPV 13.40 18.30%

IRR 21.86% 18.92%

a) If the two projects are mutually exclusive what is the appropriate decision and by how much the companys value will increase? b) If the two projects are independent what is the appropriate decision and by how much the companys value will increase?

b) If the two projects are independent what is the appropriate decision and by how much the companys value will increase?