Capital Budget Decision Company MNO is considering two projects, K and L. Project K requires an initial outlay of $700 and yields $400 in each of the next 2 years. Project L requires $700 and yields $450 in year 1 and $350 in year 2.

Requirements:

1. Calculate the NPV for both projects at discount rates of 6%, 12%, and 18%.
2. Decide which project to undertake if the cost of capital is 12%.
3. Plot the NPV versus discount rate for both projects.
4. Identify the rate at which both projects have the same NPV.