A given company has two possible ways of growing:

The first one (project A) is to sell a new product to diversify its product portfolio. The initial investment is 10,000 euros and it is expected to obtain a perpetuity of 1,000 euros per year starting at the end of the first year.

The second one (project B) is to increase production, which will require to hire more workers, to satisfy new orders. The initial investment is 7,000 euros, and it is expected to obtain a perpetuity of 800 euros per year starting at the end of the first year.

Considering that only one of the two projects can be funded:

a) The project that should be chosen based on pay-back is .

Pay-back of A =

Pay-back of B = .

Hint: Express your answers with no decimal positions.

If management should establish a 2-year payback, how would this affect your answer? (1 point)

b) Evaluate the projects based on IRR and NPV (K=5%). (3 points).

IRR of project A = %

IRR of project B = %

Hint: Express your answers as percentage, no decimal positions.

Based on IRR the project chosen should be .

NPV of project A = .

NPV of project B = .

Hint: Express your answers with no decimal positions.

Based on NPV the project chosen should be .

Are the same conclusions reached? Substantiate your answer.