Assume that you are the CFO of Microsoft Company and you were asked to estimate the cost of capital. Microsoft has 1500 bonds that now has 20 years to maturity and a 7.00% annual coupon. The bond currently sells for $925 and the companys tax rate is 30%. Moreover, Microsoft has 60,000 common stock ($10 par value) and the risk premium over its own debt cost is 5.00% and the the yield on a Treasury bond is 4%. The company recently decided that its target capital structure should have 35% debt, with the balance being common equity. Furthermore, the CEO identified two investments opportunities. Project A will cost $50,000 and Project B will cost $90,000. The CEO has decided that it will invest in one project but not both. The expected cash flow that will be generated by both project are listed below:

Project A Project B

Initial capital expenditure $50,000 $90,000

Cash year 1 25,000 30,000

2 20,000 40,000

3 15,000 14,000

4 10,000 26,000

5 10,000 10,000

In addition, the following table provides the close share price for Microsoft Corporation (MSFT) and NASDAQ, and the net income for MSFT:

	MSFT	NASDAQ	Net Income	Total Dividend
2015	$50	$5,000	$200,000.00	$130,000.00
2016	$55	$5,500	$206,000.00	$133,900.00
2017	$50	$6,000	$214,240.00	$139,256.00
2018	$60	$6,750	$224,952.00	$146,218.80
2019	$66	$7,500	$237,324.36	$154,260.83
2020	$72	$7,853	$253,937.07	$165,059.09

*Knowing that: Total risk for Microsoft is 10.55% and the market risk for Microsoft is120% (1.20), cost of debt is 5.4248% and cost of equity is 12.74972%, and WACC is 10.186%

Question: Calculate each of the following for both investments opportunities (Project A and B):

a. The Payback Period (PP) b. The Accounting Rate of Return (ARR) c. The discounted Payback Period (DPP) d.The Net Present Value (NPV) e. The Profitability Index (PI) f. The Internal Rate of Return (IRR) g. The Modified Internal Rate of Return (MIRR) h. **Advice the CEO, with reasons, which project should be selected.