1. As CFO of Gaga Inc., you are considering two projects, each with a cost of capital of 14%, with the following cash flows:

t = 0 1 2 3 4

Project S -6000 4000 3000 2000 1000

Project L -3500 2000 1000 2000 2000

a) What is the payback period of each project? (2 pts)

b) What is the IRR of each project? (2 pts)(no need to show inputs, just the answer)

c) What is the NPV of each project? (2 pts) (no need to show inputs, just the answer)

d) Which project(s) should you choose if they are mutually exclusive and there is no capital rationing? Justify your answer using appropriate criterion. (2 pts)

e) Which project should you choose if they are independent and there is severe capital rationing (such that you can only choose one)? Justify your answer using appropriate criterion. (2 pts)