3. You are given with the following information of two projects planned by your company when there is no consideration of the possible bad condition of economy. Two projects are of the same initial costs with $1 million.

Table 1: (in thousands)

Project	Year 1	Year 2	Year 3	Year 4	Year 5
A	950	2720	-350	1300	2800
B	1400	-175	1600

Answer the following questions.

a) Suppose the cost of capital is 10% and the $1 million initial outlays are paid out by installments, that is, the $1 million initial outlays are present values for the regular payments each year, what is the Net Present Value for each project?

b) Suppose the financial manager discovered that if we postponed the project B to two years later, the cost of capital could be 9% due to possible low future interest rates. However, the deferment may cost the firm additional $350,000 to restart the facilities and the initial outlay must be spent now, instead of two years later. Will you recommend waiting for additional 2 years to start?

c) Find the IRR (Internal Rate of Return) for project A and project B. What is your decision based on the IRR criterion?

d) If you applied the discounted payback periods for the decision making, which project will you choose? Is this a good decision rule?