Assume your organization is considering two investment projects, each of which requires an upfront expenditure of $25 million. You estimate that the cost of capital is 10% and that the investments will produce the following after-tax cash flows (in millions of dollars):

YearProject AProject B

1520

21010

3158

4206

Required:

a) What is the regular payback period for each project?

b) What is the discounted payback period for each project?

c) According to net present value (NPV) results:

If the two projects are independent and the cost of capital is 10%, which project or projects should the firm undertake?

If the two projects are mutually exclusive and the cost of capital is 5%, which project should the firm undertake?

If the two projects are mutually exclusive and the cost of capital is 15%, which project should the firm undertake?

d) According to internal rate of return (IRR) which project should be accepted if they are independent?